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4.1 Structure of Mutual Funds in India

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NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

4.1 Structure of Mutual Funds in India

Key Takeaways Explain This Topic AI

Indian mutual funds use a three-tier structure of sponsor, trustee and asset management company.

The fund is constituted as a trust under the Indian Trusts Act, with unitholders as beneficiaries.

Scheme assets are held by the trust and are legally separate from the assets of the sponsor and the AMC.

The sponsor must contribute at least 40% of the AMC's net worth and meet a prescribed track record.

The SEBI (Mutual Funds) Regulations, 2026 came into force on 1 April 2026, replacing the 1996 Regulations.

Last updated: August 2026

Why a Trust

A mutual fund in India is not a company and not a partnership. It is a trust , created by a trust deed registered under the Indian Registration Act and governed by the Indian Trusts Act, 1882 , and registered with SEBI.

The trust form is deliberate. In a trust, legal ownership of the assets sits with the trustees , while the beneficial interest — the right to the economic benefit — sits with the beneficiaries, who are the unitholders . The consequence matters enormously:

Scheme assets belong to the trust for the benefit of unitholders. They are not assets of the sponsor or of the asset management company, and they are not available to the creditors of either.

If a sponsoring bank fails or an AMC becomes insolvent, the securities held in its schemes are not part of that estate. They remain with the trust and, in practice, the schemes are transferred to another AMC with SEBI's approval. This is the single most important structural fact in the chapter.

  • The Three Tiers
  • Tier 1 — The Sponsor

The sponsor is the promoter: the entity that establishes the mutual fund, appoints the trustees, sets up the AMC and applies to SEBI for registration. A sponsor may be a bank, a financial institution, a corporate group or a foreign asset manager.

SEBI prescribes eligibility to ensure sponsors are substantial and durable rather than opportunistic:

A sound track record in financial services , conventionally at least five years , with positive net worth in each of those years and profitability in a majority of them

  • A general reputation for fairness and integrity in business transactions
  • Contribution of at least 40% of the net worth of the asset management company
  • Status as a fit and proper person under SEBI's criteria

SEBI has more recently also provided an alternative route based on committed capital rather than a long profitability record, so that well-capitalised new entrants are not excluded, together with a lighter framework for passive-only fund houses.

Once the fund is established, the sponsor has no role in day-to-day management and no claim on scheme assets. It appoints, it capitalises, and thereafter it stands back.

Tier 2 — The Trustees

The trustees hold the fund's property in trust for unitholders. Trusteeship may be discharged by a board of trustees or, more commonly, by a trustee company whose directors act as trustees.

SEBI requires that:

  • There be at least four trustees
  • At least two-thirds be independent , meaning not associated with the sponsor in any way
  • Appointment of trustees requires SEBI's prior approval

The trustees are the investors' representatives inside the structure , and their duty is fiduciary — owed to unitholders, not to the sponsor that appointed them. Their core obligations are to ensure the AMC manages schemes in accordance with the trust deed, the regulations and the Scheme Information Document; to review compliance and transactions; to ensure no conflict of interest harms unitholders; and to report periodically to SEBI.

Tier 3 — The Asset Management Company

The AMC is a company appointed by the trustees, with SEBI's approval, to manage the schemes. It employs the fund managers, dealers and analysts; it makes investment decisions within the stated mandate; it markets the schemes; and it is paid a management fee from scheme assets.

SEBI requires the AMC to maintain a minimum net worth of INR 50 crore and that at least 50% of its board be independent directors . An AMC may not act as a trustee of the same mutual fund, and its independent directors may not be associated with the sponsor.

  • How the Tiers Relate SPONSOR
  • (establishes, capitalises, appoints)
  • |
  • +------+------+
  • | |
  • TRUSTEES --> AMC
  • (hold assets (manages portfolio
  • for unit- under trustee
  • holders) oversight)
  • |
  • UNITHOLDERS (beneficiaries)

The deliberate separation means no single party can both control the assets and decide how they are invested . The AMC decides investments but never holds the assets — those sit with an independent custodian, appointed by the trustees. The trustees oversee but do not manage. The sponsor capitalises but does neither.

The Regulatory Framework Has Just Changed

For nearly three decades this structure was set out in the SEBI (Mutual Funds) Regulations, 1996 . Those regulations were repealed with effect from 1 April 2026 and replaced by the SEBI (Mutual Funds) Regulations, 2026 , notified in January 2026.

The 2026 Regulations are a consolidation and restatement rather than a redesign. SEBI's stated intent was clearer structure, simplified language and removal of overlapping clauses while retaining the core principles and safeguards. Sponsor eligibility was presented in consolidated form, and the roles and responsibilities of AMCs and trustees were reorganised under common thematic headings. Existing registrations, schemes, actions and approvals continue under the corresponding provisions of the new regulations.

For a candidate, the practical position is: the three-tier trust structure, the trustee independence requirements and the separation of assets are unchanged , but the operative instrument is now the 2026 Regulations. Study material printed before 2026 will cite the 1996 Regulations throughout.