NISM V-A Legal Structure of Mutual Funds — Practice Questions
Practise the three-tier structure that every Indian mutual fund is built on: the sponsor, the trust and its trustees, and the AMC — plus the custodian, RTA and the roles SEBI assigns to each.
28 questions on Legal Structure in the ScoreSetu bank — each with a detailed explanation and, where useful, a memory hook.
What this topic covers
- Sponsor, trustee and AMC
- The trust structure
- Custodian and RTA
- Who is accountable to whom
Free sample questions
1. Identify the duty of a SPONSOR of a mutual fund -
- A. Guards the interest of the mutual fund unit holders
- B. Contributes to the capital of the Asset Management Company ✅
- C. Looks after the day to day administration of the mutual fund
- D. Regularly report to SEBI on the working of the fund
Answer: B — Contributes to the capital of the Asset Management Company
Why: The application to SEBI for registration of a mutual fund is made by the sponsor. Thereafter, the sponsor invests in the capital of the AMC.
💡 Sponsor applies to SEBI & CONTRIBUTES to the AMC's capital.
2. Identify the TRUE statement with respect to Trustees of mutual funds.
- A. The Trustees can legally change the Asset Management Company (AMC) ✅
- B. The Asset Management Company (AMC) appoints the Trustees
- C. The Trustees appoint the Sponsors of the Asset Management Company (AMC)
- D. The Trustees have to approve the appointment of the distributors of its mutual fund schemes
Answer: A — The Trustees can legally change the Asset Management Company (AMC)
Why: The Trustees act as the guardians of the mutual fund and are responsible for protecting the interests of the investors. They supervise the functioning of the Asset Management Company (AMC) and ensure that it complies with SEBI regulations. If the AMC fails to perform its duties properly or acts against the interests of unit holders, the Trustees have the legal authority to replace it. However, the Trustees are not appointed by the AMC and do not approve the appointment of distributors, as these responsibilities lie with the Sponsor and the AMC. The Sponsor is the entity that establishes the mutual fund. It is the Sponsor who appoints the Trustees, not the other way around.
💡 Trustees can legally CHANGE the AMC; Sponsor appoints Trustees (not vice versa).
3. Which of the following function can an Asset Management Company (AMC) do in-house?
- A. Custodial Services
- B. Broking
- C. Registrar and Transfer Agent ✅
Answer: C — Registrar and Transfer Agent
Why: The appointment of Registrar and Transfer Agent (RTA) is done by the AMC. However, It is not compulsory to appoint an RTA. The AMC can choose to handle this activity in-house. AMC cannot be a custodian or a broker. An independent custodian ensures that the securities are indeed held in the scheme for the benefit of investors, which is an important control aspect.
💡 AMC may keep RTA in-house but can NEVER be custodian or broker.
Practise all 28 Legal Structure questions
Plus the full 743-question NISM V-A bank and real-feel mock exams.