Three-Tier Structure — Sponsor, Trustee, AMC
A mutual fund in India is a trust with three separate parties: the sponsor, the trustees and the asset management company. This lesson explains who does what, who appoints whom, and why the roles are kept apart.
A trust, not a company
A mutual fund in India is set up as a trust. It is not a company or a partnership, and its investors are not shareholders. A trust is an arrangement in which property is held by one party for the benefit of others; in a mutual fund, the others are the unit holders.
The trust is created by a trust deed, which the sponsor executes in favour of the trustees and which is registered under the Registration Act, 1908. The fund is then registered with SEBI under the SEBI (Mutual Funds) Regulations, 2026. These came into force on 1 April 2026 and replaced the 1996 Regulations, which had themselves replaced SEBI's first Mutual Fund Regulations of 1993.
Three parties, three jobs
The sponsor sets up the fund: it executes the trust deed and appoints the trustees. The trustees hold the fund's property for the benefit of unit holders and oversee how the fund is run. The asset management company (AMC) manages the investments of the schemes.
The chain of appointment runs in one direction. The sponsor sets up the trust and appoints the trustees; the trustees appoint the AMC, with SEBI's approval; the AMC manages the schemes. SEBI registers and regulates the fund but does not set it up or run it.
Why the roles are separated
The design gives set-up, oversight and management to three different parties. The party that takes the daily investment decisions, the AMC, does not own the money and is watched by someone else, the trustees, whose duty is to the unit holders.
Because scheme assets are held in trust, they are separate from the AMC's own assets. The AMC's own finances and the investors' pooled money are kept apart. The Regulations reinforce the separation with independence requirements for the boards of both the trustee company and the AMC.
What the structure does not do
The three-tier structure is about who holds, oversees and manages the money. It does not remove market risk. The schemes invest in securities whose prices move, and the value of units can still fall.
Rules at a glance
Following the chain (illustrative)
A financial-services company decides to start a mutual fund. As sponsor it executes a trust deed in favour of a trustee company, the deed is registered, and the fund is registered with SEBI. The trustee company then appoints an AMC, with SEBI's approval, and the AMC launches schemes.
Lakshmi, 33, a schoolteacher in Thrissur, invests ₹5,000 in one of them. Her money becomes part of the scheme's assets, held in trust for unit holders and managed by the AMC. If the shares the scheme holds fall by a tenth, the value of her units falls with them; the structure decides who looks after her money, not how markets behave.
Key points
- A mutual fund is a trust, created by a registered trust deed; it is not a company or a partnership.
- It is registered with SEBI under the SEBI (Mutual Funds) Regulations, 2026, in force from 1 April 2026; they replaced the 1996 Regulations.
- The sponsor sets up the fund, executes the trust deed and appoints the trustees.
- The trustees hold the fund's property for the benefit of unit holders and appoint the AMC, with SEBI's approval.
- The AMC manages the schemes; scheme assets are held in trust, separate from the AMC's own assets.
- The structure separates roles; it does not stop the value of units falling with markets.
Common misunderstandings
- A mutual fund is not a company and its investors are not shareholders: it is a trust, and investors hold units.
- The AMC is not the mutual fund: it manages the schemes, while the assets are held in trust.
- SEBI does not set up or manage funds: the sponsor sets up the trust, and SEBI registers and regulates it.
- The trustees do not work for the AMC: they appoint it, with SEBI's approval, and oversee it for unit holders.
- Separation of roles is not protection from market falls: the value of units can still fall.
Questions people ask
Who appoints whom?
The sponsor appoints the trustees. The trustees appoint the AMC, with SEBI's approval. The AMC manages the schemes.
Does the AMC own the money in a scheme?
No. Scheme assets are held in trust, separate from the AMC's own assets. The AMC manages them for a fee.
Do the 1996 Regulations still apply?
No. The SEBI (Mutual Funds) Regulations, 2026 replaced them from 1 April 2026. Older material that cites the 1996 Regulations describes the earlier rulebook.
What this lesson relies on
- SEBI (Mutual Funds) Regulations, 2026 (in force from 1 April 2026)
- Registration Act, 1908 (registration of the trust deed)
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.