The legal skeleton: how Indian mutual funds are formed and who is accountable to whom.
Indian mutual funds are constituted as trusts under the Indian Trusts Act, 1882, registered with SEBI - not as companies, partnerships, or LLPs.
This legal form is chosen specifically because a trust structure separates ownership (the Trustees, for unitholders' benefit) from management (the AMC), which is central to investor protection.
The standard chain is Sponsor -> Trust/Trustees -> AMC. The Sponsor establishes the mutual fund and contributes the initial capital; the Trust is the legal vehicle that actually owns the pooled assets.
Trustees (either individuals or a Trustee Company) oversee the AMC on behalf of unitholders; the AMC is appointed by the Trustees to manage the money day to day, under an investment management agreement.
Within the AMC, the Fund Manager is responsible for actual portfolio construction and ongoing investment decisions for a scheme, operating within the mandate set out in the Scheme Information Document.
The AMC also runs compliance, risk management, operations, and investor-service functions alongside the investment team.
AMFI (Association of Mutual Funds in India) is a self-regulatory industry body that promotes ethical standards, investor awareness, and administers distributor registration (ARN) - it is not a regulator.
SEBI alone regulates mutual funds; this AMFI-vs-SEBI distinction is one of the most common exam traps.
Beyond the AMC and Trustees, a mutual fund relies on a Custodian (safekeeps securities, settles trades), an RTA (investor records and transaction processing), and a statutory Auditor (audits the scheme's accounts).
Each of these functions independently of the AMC to maintain checks and balances.
Memory hook
Trust is the legal home; AMC is the operating engine; SEBI always regulates, AMFI never does.
Independent study aid by Ramaniya, based on the syllabus of the National Institute of Securities Markets (NISM) - not an official NISM publication.
