Lesson 2 of 6 · Fund Structure & Key Players

Role of the Sponsor & Trustee

The sponsor sets up a mutual fund and the trustees watch over it for unit holders. This lesson covers who may be a sponsor, the stake it must keep in the AMC, and the trustees' independence, meetings and powers.

Fact-checked 8 October 20264 practice questions in the game

The sponsor and its two routes

The sponsor is the entity that sets up a mutual fund: it executes the trust deed and appoints the trustees. The SEBI (Mutual Funds) Regulations, 2026 limit who may be a sponsor: an applicant qualifies by one of two routes.

Route 1 rests on track record. The sponsor needs at least five years in financial services, with a record of profits and positive net worth, and the AMC needs a net worth of at least ₹50 crore. Route 2 has no profit test; in its place it requires a higher net worth for the AMC. A private equity fund may be a sponsor by this route.

The 40% stake

The sponsor must hold at least 40% of the AMC's net worth. This gives the sponsor a continuing financial stake in the AMC of the fund it has set up.

The rule also works in reverse: a holder of 40% or more of the AMC is deemed to be a sponsor.

The trustees

The trustees, organised as a trustee company or a board of trustees, hold the fund's property for the benefit of unit holders. They oversee the AMC's compliance with the Regulations and look after unit holders' interests.

Oversight means little if the overseer is close to the party being overseen. At least two-thirds of the directors of a trustee company must therefore be independent, meaning they are not associates of the sponsor, the AMC or the trustee company. This is a stricter test than the one for the AMC's own board, where at least 50% of the directors must be non-associates.

Meetings and powers

Trustees must meet at least once every quarter and at least four times a year. Older material quotes the earlier rule of once every two months and six meetings a year.

The trustees appoint the AMC, with SEBI's approval, and can end its appointment only with SEBI's prior approval. They also appoint the auditor of the fund. When a scheme's fundamental attributes are to change, the trustees take SEBI's comments first, and unit holders get written notice with an option to exit at NAV, without exit load, for at least 30 calendar days.

Rules at a glance

Sponsor, Route 1At least 5 years in financial services, record of profits, positive net worth; AMC net worth at least ₹50 croreSEBI (Mutual Funds) Regulations, 2026, Regulation 5

Sponsor, Route 2No profit test; higher AMC net worth; open to a private equity fundRegulation 5

Sponsor's holding in the AMCAt least 40% of the AMC's net worthRegulation 5

Trustee company's boardAt least two-thirds independent directorsSEBI (Mutual Funds) Regulations, 2026

Trustee meetingsAt least once every quarter and at least four times a yearSecond Schedule, item 7; older rule: once every two months

Illustration

Trustees at a quarterly meeting (illustrative)

At their quarterly meeting the directors of a trustee company question the AMC's officers about how a scheme has been run. At least two-thirds of the board is independent of the sponsor and the AMC.

Their duty is to the unit holders. If they concluded that the AMC ought to be replaced, ending its appointment would need SEBI's prior approval.

Worked example

Applying the thresholds (illustrative)

Made-up figures: an AMC set up under Route 1 has a net worth of ₹80 crore, which is above the ₹50 crore minimum.
Sponsor's minimum holding = 40% × ₹80 crore = ₹32 crore of the AMC's net worth.
A trustee company has 9 directors. Independent directors needed = two-thirds × 9 = 6.
An AMC has 8 directors. Directors who must not be associates of the sponsor or the trustees = 50% × 8 = 4.

Result. The sponsor holds at least ₹32 crore of the AMC's net worth, at least 6 of the 9 trustee directors are independent and at least 4 of the 8 AMC directors are non-associates.

Key points

A sponsor qualifies by one of two routes under the SEBI (Mutual Funds) Regulations, 2026.
Route 1: at least 5 years in financial services with profits and positive net worth; AMC net worth of at least ₹50 crore.
Route 2: no profit test, but a higher AMC net worth; open to a private equity fund.
The sponsor must hold at least 40% of the AMC's net worth.
At least two-thirds of a trustee company's directors must be independent.
Trustees meet at least once every quarter and at least four times a year; they can end an AMC's appointment only with SEBI's prior approval.

Common misunderstandings

The sponsor does not run the schemes: it sets up the fund and appoints the trustees, and the AMC manages the investments.
The two-thirds rule applies to the trustee company, not the AMC: the AMC's board needs at least 50% non-associate directors.
The ₹50 crore figure is the net worth of the AMC on Route 1, not a net worth required of the sponsor.

Questions people ask

Why are there two routes for a sponsor?

Route 1 relies on a track record of five years in financial services with profits and positive net worth. Route 2 drops the profit test and asks for a higher AMC net worth; a private equity fund may use it.

What makes a trustee director independent?

The director is not an associate of the sponsor, the AMC or the trustee company.

Can the trustees remove the AMC on their own?

No. They can end the AMC's appointment only with SEBI's prior approval.

What this lesson relies on

SEBI (Mutual Funds) Regulations, 2026 — Regulation 5 (sponsor eligibility and holding) and Second Schedule, item 7 (trustee meetings)
SEBI Master Circular for Mutual Funds (20 March 2026)

This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.