NISM-Series-V-A: Mutual Fund Distributors · Legal Structure of Mutual Funds in India

Sponsor, Trustees and AMC under SEBI Mutual Fund Regulations

Updated 11 October 2026

The sponsor sets up the mutual fund, the trustees hold its assets for unit holders and supervise, and the AMC manages the schemes. SEBI sets eligibility and limits for each: a sponsor needs a five-year track record and at least 40% of AMC net worth, trustees need two-thirds independence, and an AMC needs ₹50 crore net worth.

Understand Sponsor, Trustees and Asset Management Company

An Indian mutual fund is set up as a trust. Three parties make it work, and SEBI regulates each one separately. Exam questions test who does what and which limit applies to whom.

The sponsor is the promoter, like the settlor of a trust. It creates the trust, contributes to its corpus and appoints the trustees and the AMC. SEBI wants only reputed, financially sound firms to do this, so it sets a track record test. The sponsor must have been in financial services for at least 5 years and must have a positive net worth in each of the 5 preceding years. Its net worth in the immediately preceding year must exceed its capital contribution to the AMC. It must also have made net profits (after depreciation, interest and tax) in 3 of the preceding 5 years, including the fifth year. The sponsor must hold at least 40% of the net worth of the AMC. A person holding 40% or more of the AMC's net worth is treated as a sponsor and must meet the same criteria.

The trustees protect unit holders. They hold the trust property for the benefit of unit holders and supervise the AMC. They can be a trustee company or a board of trustees. At least two-thirds of trustees must be independent, meaning not associated with the sponsor in any manner. Trustees sign the investment management agreement with the AMC. They obtain a due diligence certificate from the AMC with each offer document. They ensure the AMC maintains the prescribed net worth and send half-yearly reports to SEBI on the fund's activities. They can act against the AMC if it breaks the rules.

The Asset Management Company (AMC) runs the money day to day. It manages the schemes, takes investment decisions and handles operations. SEBI requires a minimum net worth of ₹50 crore. At least 50% of its directors must be independent of the sponsor, its subsidiaries and the trustees. The AMC must not act as a trustee of any mutual fund. Its business is restricted to fund management and a few permitted related activities, such as portfolio management, advisory services to pension funds, offshore funds and similar pools, as allowed by the Regulations. The AMC can be removed in two ways: by a majority of the trustees, or by 75% of the unit holders of a scheme, with SEBI being informed. A unit holders' resolution is passed by a 75% majority of those present and voting. Either route is enough on its own, so a trustee majority can remove the AMC.

A simple memory frame: sponsor = creates and funds, trustees = guard, AMC = manages. Check the figures against the latest NISM workbook edition, because SEBI amends the rules from time to time.

Key formulas to remember

Sponsor track record: ≥ 5 years in financial services; positive net worth in each of the preceding 5 years; net profit in 3 of the preceding 5 years, including the fifth; Net worth in the immediately preceding year must also exceed the sponsor's capital contribution to the AMC.
Sponsor stake in AMC: Sponsor holding ≥ 40% of the AMC's net worth; Any person holding 40% or more of AMC net worth is deemed a sponsor and must meet sponsor eligibility.
Trustee independence: Independent trustees ≥ ⅔ of all trustees; Independent means not associated with the sponsor in any manner.
AMC minimum net worth: Net worth ≥ ₹50 crore; Applies to a fund house's AMC; the AMC must maintain it and the trustees ensure it does.
AMC board independence: Independent directors ≥ 50% of AMC directors; Independent of sponsor, its subsidiaries and trustees.
Trustee reporting: Half-yearly report to SEBI on the fund's activities; Trustees also get a due diligence certificate from the AMC with every offer document.
Removal of AMC: Majority of trustees, or 75% of unit holders of a scheme (75% of those present and voting); SEBI is informed; Either route is enough on its own. A trustee majority can remove the AMC.
AMC and trusteeship: AMC cannot act as trustee of any mutual fund; The AMC, and its directors or officers, cannot be trustees of any mutual fund.

How to solve Sponsor, Trustees and Asset Management Company questions

Most questions on this topic ask you to match a rule to the right party or to spot a violation. Use the same routine each time.

1Read the question and mark the party: sponsor, trustee or AMC. Many wrong options give a rule of one party to another.
2Mark the type of rule: eligibility, number or limit, duty, or restriction.
3Recall the figure for that party: 5 years and 40% for the sponsor, two-thirds for trustees, ₹50 crore and 50% for the AMC.
4If the question asks for a minimum count, compute it and round up to a whole person. For example, two-thirds of 9 is exactly 6, and 50% of 9 is 4.5, so at least 5.
5Check the direction of words like 'at least', 'not more than', 'independent' and 'associated with the sponsor'.
6Eliminate options that give the right figure to the wrong party, then pick the one that matches both party and figure.

Quickest way: Party-figure matching

When to use it: Use this for one-line recall MCQs when you have under a minute per question.

Memorise one line per party: Sponsor 5 years, 3 of 5 profits, 40% of AMC; Trustee two-thirds independent; AMC ₹50 crore, 50% independent directors.
Find the party word in the stem and ignore the rest until you have a figure in mind.
Pick the option that has that party with that figure. Drop options that swap trustee and AMC percentages.

Common mistakes in Sponsor, Trustees and Asset Management Company

Mixing up the trustee and AMC independence limits
Both involve an independence percentage and the two numbers look alike.
Fix: Trustees: at least two-thirds independent. AMC directors: at least 50% independent.
Saying the sponsor needs profits in all of the last 5 years
Students merge the net worth test with the profit test.
Fix: Net worth must be positive in all 5 preceding years. Net profit is needed in 3 of the preceding 5 years, including the fifth.
Thinking the sponsor must hold 40% of the mutual fund trust or the scheme
The words 'mutual fund' and 'AMC' are used loosely.
Fix: The 40% test is on the net worth of the AMC, not the trust corpus or any scheme.
Giving the AMC the trustee's duties, such as holding trust property
Both seem to 'manage' the fund.
Fix: Trustees hold the trust property and supervise. The AMC manages the schemes and takes investment decisions.
Believing an AMC may also act as a trustee or run any other business
Students assume a larger firm can do everything.
Fix: An AMC cannot be a trustee of any mutual fund, and it may only do the permitted related activities allowed by SEBI.
Rounding independent director counts down
For example, 4.5 is rounded to 4 by habit.
Fix: When the rule says 'at least', round up. Of 9 directors, at least 5 must be independent.

Worked examples

Example 1

A mutual fund trust has a board of 9 trustees. As per SEBI regulations, what is the minimum number of independent trustees? (a) 3 (b) 5 (c) 6 (d) 9

Show the solution

The party is the trustees, so the rule is that at least two-thirds must be independent.
Compute two-thirds of 9: 9 × 2 ÷ 3 = 6.
Six is a whole number, so no rounding is needed.
Option (b) 5 is below two-thirds. Option (a) 3 is only one-third. Option (d) 9 is more than required, not the minimum.

Answer: (c) 6

Example 2

An AMC is set up with the minimum net worth SEBI requires. What is the minimum amount the sponsor must contribute to meet the 40% rule? (a) ₹10 crore (b) ₹20 crore (c) ₹25 crore (d) ₹50 crore

Show the solution

The AMC's minimum net worth is ₹50 crore.
The sponsor must hold at least 40% of the AMC's net worth.
Compute: 40% × ₹50 crore = 0.40 × 50 = ₹20 crore.
₹25 crore would be 50%, and ₹50 crore is the whole net worth. ₹10 crore is only 20% of ₹50 crore, so it is too low.

Answer: (b) ₹20 crore

Exam tips

Expect straight recall MCQs. Learn each figure with its party: sponsor 5 years and 40%, trustees two-thirds, AMC ₹50 crore and 50%.
Watch for options that swap the sponsor's track record with AMC criteria. Read the party in the stem twice.
NISM V-A has no negative marking, so always attempt every question. Still eliminate swapped-party options first.
Revise the restriction rules: the AMC cannot be a trustee, and it may only carry on the permitted related activities. Also remember that the AMC can be removed by a majority of the trustees or by 75% of the unit holders of a scheme, with SEBI being informed.
Use the latest NISM workbook for the figures. If an option differs from an older figure you remember, check the edition.

Practice questions from Legal Structure of Mutual Funds in India

Sponsor, Trustees and Asset Management Company: frequently asked questions

What is the track record required of a mutual fund sponsor?

The sponsor must have been in financial services for at least 5 years. It needs a positive net worth in each of the 5 preceding years and net profit in 3 of the 5, including the fifth. Its net worth in the immediately preceding year must exceed its capital contribution to the AMC.

What is the minimum net worth of an AMC in India?

SEBI requires an AMC to have a net worth of at least ₹50 crore. The AMC must maintain it, and the trustees ensure that it does.

What are the main responsibilities of mutual fund trustees?

Trustees hold the trust property for unit holders and supervise the AMC. They sign the investment management agreement, receive the AMC's due diligence certificate with each offer document and send half-yearly reports to SEBI. They must also act if the AMC breaks the rules.

Can an AMC also be a trustee of a mutual fund?

No. An AMC cannot act as a trustee of any mutual fund. The roles are kept apart so that trustees can supervise the AMC independently.

How many independent directors must an AMC board have?

At least 50% of the AMC's directors must be independent, meaning not associated with the sponsor, its subsidiaries or the trustees. Round up when the count is fractional.