NISM V-D Legal Structure of Mutual Funds — Practice Questions
Practise the three-tier structure of an Indian mutual fund — sponsor, trustees and AMC — and the roles of the custodian, RTA, auditors and distributors.
18 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
- Custodian and RTA
- Eligibility and net-worth rules
- Roles of other constituents
Free sample questions
1. Which of the following correctly describes the primary role of an Asset Management Company?
- A. It manages the mutual fund’s investments and assets ✅
- B. It establishes and promotes the mutual fund
- C. It functions as the custodian of the mutual fund
- D. It is responsible for appointing trustees
Answer: A — It manages the mutual fund’s investments and assets
Why: The main role of an Asset Management Company (AMC) is to professionally manage the investments and assets of the mutual fund schemes. It makes investment decisions such as buying and selling securities according to the scheme objectives. The trustees act as the guardians of the mutual fund and supervise the AMC to protect investors’ interests. The sponsor promotes or establishes the mutual fund, while trustees are appointed by the sponsor with SEBI approval procedures. Therefore, the AMC’s primary role is managing the mutual fund’s assets.
💡 AMC -> professionally manages the fund's investments & assets; trustee guards, sponsor promotes.
2. Who is responsible for making the application to SEBI for mutual fund registration?
- A. The Asset Management Company
- B. The Board of directors of the fund
- C. The Trustees of the mutual fund
- D. The Sponsors of the mutual fund ✅
Answer: D — The Sponsors of the mutual fund
Why: The sponsor is the person or entity that sets up the mutual fund. To start a mutual fund in India, the sponsor must apply to SEBI for registration. After SEBI approval, the trust, trustees, and Asset Management Company (AMC) are formed. Therefore, the application for registration is made by the sponsors.
💡 MF registration application to SEBI is made by the Sponsor.
3. What is required for the termination of the services of an Asset Management Company (AMC) ?
- A. 75 % of the mutual funds distributors should approve the termination of the Asset Management Company
- B. 75 % of the unitholders should approve the termination of the Asset Management Company ✅
- C. The custodian should approve the termination of the Asset Management Company
- D. AMFI should approve the termination of the Asset Management Company
Answer: B — 75 % of the unitholders should approve the termination of the Asset Management Company
Why: The appointment of the AMC for the Mutual Fund can be terminated by majority of the Directors of the Trustee Board or by 75 percent of the Unitholders of the Scheme.
💡 AMC appointment terminable by majority of Trustee directors OR 75% of unitholders.
Practise all 18 Legal Structure questions
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Other NISM V-D topics
Investment LandscapeConcept & Role of Mutual FundsLegal & RegulatoryScheme Related InformationDistribution & ChannelsNAV, TER & PricingTaxationInvestor ServicesRisk, Return & PerformanceScheme PerformanceScheme SelectionBasics of DerivativesUnderstanding the IndexForwards & FuturesOptionsEquity Derivative StrategiesInterest Rates & Fixed IncomeInterest Rate DerivativesInterest Rate FuturesInterest Rate OptionsInterest Rate Strategies