6B.1 What a fund is: the Indian trust structure

6B.1.1Sponsor, trustee and AMC#

The parties An Indian mutual fund is a trust registered with SEBI. The SEBI (Mutual Funds) Regulations, 2026 define a mutual fund as "a fund established in the form of a trust granted registration under regulation 3 and which raises monies through the sale of units to the public under one or more schemes" (Regulation 2(1)(gg))¹.

Party	Role	What it owns or risks
Sponsor	Sets up the trust, appoints the trustee, contributes the AMC's initial capital. Usually a financial group (a bank, an insurer, a foreign asset manager).	Its investment in the AMC. It must meet net-worth and track-record criteria.
Trustee (a trustee company or board)	Holds the scheme assets in trust for unitholders; supervises the AMC; approves schemes; can wind a scheme up.	Fiduciary liability to unitholders. At least two-thirds of a trustee company's directors must be independent, not associates of the sponsor or the AMC (Regulation 11(5)) [V].
AMC (asset management company)	Runs the money under an investment management agreement with the trustee: research, dealing, operations, sales. Earns the management fee.	Its own shareholders' capital. It does not own scheme assets.
Custodian	Holds the scheme's securities and cash in segregated accounts, settles trades, collects dividends.	Nothing of the scheme's; it is a bailee.
RTA (registrar and transfer agent)	Keeps the register of unitholders, processes purchases and redemptions, issues statements.	Operational liability only.
Auditor	Audits each scheme's accounts. The 2026 Regulations require that it is not associated with the AMC's own auditor (Regulation 69(1)) [V].	Professional liability.

6B.1.2Regulators and the 2026 rules#

SEBI and AMFI SEBI writes the regulations and circulars (the operational detail sits in its Master Circular for Mutual Funds, the latest consolidation reported as 20 Mar 2026 [S]). The Association of Mutual Funds in India (AMFI) is the industry body: it registers distributors (through the ARN, the AMFI registration number), publishes industry data and every scheme's daily NAV and TER, and writes industry standards (valuation, the list of large, mid and small companies). AMFI is not a regulator, but SEBI often delegates standard-setting to it.

The 2026 Regulations The SEBI (Mutual Funds) Regulations, 2026 (notification F. No. SEBI/LAD-NRO/GN/2026/294 of 14 Jan 2026) came into force on 1 Apr 2026 and repealed the 1996 Regulations (Regulations 1(2) and 85(1))². They kept the trust model and added three things this module uses: the base expense ratio (6B.3), the Specialized Investment Fund as a chapter of the regulations (Chapter IX; 6B.4), and MF Lite, a lighter registration for sponsors that run only index funds, ETFs and certain fund of funds (Regulation 2(1)(hh) and Chapter X) [V].

6B.1.3Open, closed and interval schemes#

Scheme types

• Open-ended: units are sold and redeemed every business day at NAV-based prices, with no fixed redemption date ("a scheme of a mutual fund which offers units for sale without specifying any duration for redemption", Regulation 2(1)(nn)) [V]. Almost all retail money is here.
• Closed-ended: units are sold once, in the new fund offer, and the scheme ends on a fixed date. Units must be listed so that holders can exit early, but listed closed-ended units usually trade thinly and at a discount to NAV.
• Interval: closed most of the time, open for purchase and redemption during specified windows.
• ETFs are open-ended schemes whose units trade on the exchange; creation and redemption with the AMC happen in large blocks (6B.9).

A unit is the claim. A new fund offer (NFO) is the initial sale, usually at ₹10 a unit. A low NFO price is not cheapness: the NAV of an NFO at ₹10 and an old fund at ₹500 describe the same thing per rupee invested (6B.2).

6B.1.4Investor protection and winding up#

Why an AMC failure does not take the investors' money The scheme's assets belong to the trust, are registered in the trustee's name for the scheme, and sit with the custodian in accounts separate from the AMC's. The AMC's creditors have a claim on the AMC's balance sheet (its own capital, its fee receivables), not on scheme assets. If an AMC fails or loses its licence, the trustee appoints another AMC and the schemes continue. What can hurt investors is the value of the assets themselves (a default in a debt fund, 6B.10) and misconduct inside the AMC (front-running, 6B.12.3), not the AMC's solvency. Compare a bank deposit, which is a loan to the bank: deposit insurance exists because the depositor is a creditor.

Winding up A scheme is wound up (Regulation 36(2)) [V]: (a) on any event which, in the trustees' opinion, requires it; (b) if 75% of unitholders resolve to wind it up; or (c) if SEBI so directs. Under (a), the trustees must obtain consent "by simple majority of unitholders participating in the voting on the basis of one vote per unit" (Regulation 36(4)) [V]. That clause codifies what the Supreme Court decided in the Franklin Templeton case of 2021 (6B.12.1).