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NISM-Series-X-A: Investment Adviser (Level 1) · Mutual Funds

Mutual Fund Structure and Constituents: Sponsor, Trustee, AMC

Updated 11 October 2026 · Fact-checked

In India, a mutual fund is set up as a trust under the SEBI (Mutual Funds) Regulations, 1996. A sponsor creates the trust, trustees hold the assets for unit holders, and an AMC manages the schemes. A custodian keeps the securities and a registrar handles unit records. Know who does what.

Understand Mutual Fund Structure and Constituents

A mutual fund pools money from many investors and invests it in securities. In India the pool is not a company. It is a trust (under the Indian Trusts Act, 1882), and the unit holders are its beneficiaries. This is why the structure matters: the people who manage the money are kept separate from the people who hold it.

The structure has three tiers. The sponsor is the person who sets up the fund. The trustees (a trustee company or a board of trustees) hold the trust property for the benefit of unit holders. The Asset Management Company (AMC) manages the schemes and invests the money. The AMC is appointed by the sponsor, or by the trustees if the trust deed authorises it, with the prior approval of SEBI. The trustees then supervise it on an ongoing basis.

The sponsor settles the trust with an initial contribution and registers the trust deed. It then applies to SEBI for registration of the mutual fund. The sponsor must meet SEBI's eligibility conditions:

  • A sound track record and general reputation of fairness in transactions.
  • At least 5 years of experience in financial services business.
  • Positive net worth in each of the immediately preceding 5 years, and in the immediately preceding year a net worth higher than its capital contribution to the AMC.
  • Net profit after depreciation, interest and tax in three of the immediately preceding five years, including the latest year.
  • A contribution of at least 40% to the net worth of the AMC. Any person who holds 40% or more of the net worth of an AMC is treated as a sponsor and must meet these eligibility conditions.

So the sponsor's stake in the AMC is substantial, but the sponsor is not the day-to-day manager and does not hold the investors' money.

The trustees are the watchdogs. They oversee the AMC and make sure it follows SEBI rules and the trust deed. They review the AMC's performance and report to SEBI. The AMC, and its officers or employees, cannot act as a trustee of any mutual fund. The AMC runs the schemes, and at least 50% of its directors must not be associates of, or associated in any manner with, the sponsor or any of its subsidiaries or the trustees.

The supporting constituents are the custodian and the registrar and transfer agent (RTA). The custodian safekeeps securities and settles trades. The RTA processes purchases and redemptions, maintains unit holder records and sends statements. Auditors, bankers and distributors also support the fund. SEBI regulates all of it, and AMFI acts as the industry body.

Key formulas to remember

Three-tier structure
Sponsor → Trustees → AMC
The sponsor sets up the trust. The trustees hold the assets for unit holders and supervise. The AMC manages the schemes and is appointed with SEBI approval.
Governing regulation
SEBI (Mutual Funds) Regulations, 1996
A mutual fund must be registered with SEBI and constituted as a trust.
Legal form
Mutual fund = trust under the Indian Trusts Act, 1882, with a registered trust deed; unit holders = beneficiaries
A mutual fund is not a company. The trustees hold the trust property for unit holders, who share in it in proportion to their units.
Role split
AMC manages | Custodian safekeeps | RTA records
Use this as a quick filter in any question on who performs a function.
Separation rule
AMC, its officers and employees cannot act as trustee of any mutual fund
This keeps management and oversight separate.

How to solve Mutual Fund Structure and Constituents questions

Most questions on this topic ask you to match a function to the correct constituent or to spot a wrong statement. Use the same method each time.

  1. 1Read the question and mark the function being described, such as setting up, overseeing, managing, safekeeping or record keeping.
  2. 2Map the function to a constituent: set up = sponsor, oversight = trustees, investment management = AMC, safekeeping = custodian, unit records = RTA.
  3. 3Check whether the question is about the tier (sponsor, trustee, AMC) or the support role (custodian, RTA).
  4. 4In negative questions (NOT true, EXCEPT), test each option against the role map and find the one that breaks it.
  5. 5Watch for trap words such as company, owns, guarantees and always, which often make a statement false.
  6. 6If two options seem right, recall the separation rule: oversight and management sit with different bodies.
  7. 7Confirm that exactly one option remains before you answer, since wrong answers carry negative marks.

Quickest way: Role-map filter

When to use it: Use this for any one-line match or true/false question on mutual fund constituents.

  1. Memorise the chain: Sponsor creates, Trustees guard, AMC manages, Custodian keeps, RTA records.
  2. Match the verb in the question to one of these five roles.
  3. Eliminate options that give a function to the wrong body.
  4. Reject options that call the fund a company or give guarantees of return.
  5. Pick the remaining option.

Common mistakes in Mutual Fund Structure and Constituents

  • Saying the sponsor manages the investments.

    The sponsor is seen as the owner or promoter of the fund, so people assume it runs it.

    Fix: The sponsor only sets up the trust and the AMC. Investment management is the AMC's job.

  • Treating the AMC as the one that holds investors' assets.

    The AMC handles the money flow and the portfolio, so it feels like the holder.

    Fix: The trust holds the assets, and trustees act for unit holders. Securities are physically safekept by the custodian.

  • Mixing up the trustees and the custodian because both 'hold' things.

    Both words suggest safekeeping.

    Fix: Trustees hold the trust property on behalf of unit holders and supervise. The custodian is a service provider that keeps securities and settles trades.

  • Thinking a mutual fund is a company.

    AMCs are companies, so the whole structure seems corporate.

    Fix: The mutual fund is a trust. Only the AMC, and sometimes the trustee company and sponsor, are companies.

  • Assigning unit holder records and statements to the custodian.

    Both are back-office roles.

    Fix: The RTA maintains unit holder records, processes transactions and sends statements. The custodian deals with securities.

  • Believing the AMC or its officers and employees can also be a trustee of a mutual fund.

    Students assume one group can run and monitor the fund.

    Fix: Recall that the structure separates management from oversight. The AMC, and its officers or employees, cannot act as a trustee of any mutual fund.

Worked examples

Example 1

Which one of the following is the primary responsibility of the trustees of a mutual fund?
A. Investing the scheme's money in securities
B. Safekeeping securities and settling trades
C. Holding the trust property for unit holders and overseeing the AMC
D. Maintaining unit holder records and issuing statements

Show the solution
  1. Identify the function: the question asks about trustees, the oversight tier.
  2. Test option A: investing is done by the AMC, so it is wrong.
  3. Test option B: safekeeping and settlement are done by the custodian, so it is wrong.
  4. Test option D: unit records and statements are the RTA's work, so it is wrong.
  5. Test option C: holding trust property for unit holders and supervising the AMC is the trustees' role, so it is right.

Answer: C

Example 2

Which of the following statements about the structure of a mutual fund in India is correct?
A. A mutual fund is a company that is managed by the sponsor
B. The AMC may also act as a trustee of the mutual fund it manages
C. The custodian maintains the records of unit holders
D. The sponsor sets up the trust and the AMC is appointed to manage the schemes

Show the solution
  1. Test A: a mutual fund is a trust, not a company, and the sponsor does not manage it day to day, so it is wrong.
  2. Test B: the AMC, and its officers or employees, cannot act as a trustee of any mutual fund, so it is wrong.
  3. Test C: unit holder records are kept by the RTA, not the custodian, so it is wrong.
  4. Test D: the sponsor creates the trust and an AMC is appointed, with SEBI approval, to manage the schemes, so it matches the structure.

Answer: D

Exam tips

  • Expect match-the-role questions. Learn the five roles as one chain and answer from that.
  • Negative-marking applies in this exam, so eliminate the clearly wrong role first and answer only when one option remains.
  • Watch for options that call the mutual fund a company or promise assured returns. Both are traps.
  • Questions about the sponsor and trustee are common. Remember: the sponsor sets up, the trustees supervise.
  • Read the verb carefully. Safekeep, record, manage and oversee each point to a different constituent.

Practice questions from Mutual Funds

Mutual Fund Structure and Constituents in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Mutual Fund Structure and Constituents: frequently asked questions

What is the difference between a sponsor and a trustee in a mutual fund?

The sponsor sets up the mutual fund as a trust and applies for SEBI registration. The trustees hold the trust property for unit holders and oversee the AMC. The sponsor starts the structure and the trustees protect investors within it.

What does the AMC do in a mutual fund?

The Asset Management Company manages the schemes. It decides how to invest the money collected, launches schemes and runs the portfolio. It is appointed with the prior approval of SEBI and works under the supervision of the trustees and within SEBI rules.

What is the role of the custodian in a mutual fund?

The custodian safekeeps the securities of the schemes and helps settle trades. It does not manage investments. It is a service provider appointed to protect and handle the securities.

What does the registrar and transfer agent do?

The RTA processes unit purchases and redemptions, keeps unit holder records and sends account statements and other communication to investors. It handles investor records, not securities.