NISM Series V-D Ch.3: Legal Structure of Mutual Funds in India — Practice Questions

Q: What is the maximum permissible percentage of directors on the board of an Asset Management Company (AMC) who can also be directors on the board of the sponsor company, as per SEBI (Mutual Funds) Regulations, 1996?

Not more than one-third. Regulation 21(d) of SEBI (Mutual Funds) Regulations, 1996 states that not more than one-third of the directors of the asset management company shall be directors of the same sponsor or any of its associates or subsidiaries. Additionally, not less than fifty percent of the directors of the AMC shall be independent directors.

Q: According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the board of directors of an Asset Management Company (AMC)?

Not less than half of the directors. As per SEBI (Mutual Funds) Regulations, 1996, the Asset Management Company (AMC) board must have at least half of its directors as independent directors to ensure proper oversight and investor protection.

Q: What is the minimum proportion of independent trustees required on the Board of Trustees of a mutual fund?

Two-thirds As per SEBI (Mutual Funds) Regulations, 1996, Regulation 16(2), at least two-thirds of the trustees on the board of trustees must be independent trustees. An independent trustee is defined as one who is not associated with the sponsor or the Asset Management Company (AMC).

Multiple Choice Questions (25)

Q1MCQHardAMC Board Composition and Restrictions

What is the maximum permissible percentage of directors on the board of an Asset Management Company (AMC) who can also be directors on the board of the sponsor company, as per SEBI (Mutual Funds) Regulations, 1996?

ANot more than one-third.

BNot more than one-fourth.

CNot more than fifty percent.

DNot more than seventy-five percent.

Q2MCQHardAsset Management Company (AMC) Board Composition

According to SEBI (Mutual Funds) Regulations, 1996, what is the minimum proportion of independent directors required on the board of directors of an Asset Management Company (AMC)?

ANot less than one-third of the directors.

BNot less than half of the directors.

CNot less than two-thirds of the directors.

DExactly half of the directors.

Q3MCQEasyBoard of Trustees Composition and Independence

What is the minimum proportion of independent trustees required on the Board of Trustees of a mutual fund?

AOne-third

BHalf

CTwo-thirds

DThree-fourths

Q4MCQMediumCustodian Appointment

As per SEBI (Mutual Funds) Regulations, 1996, who is primarily responsible for the appointment of the Custodian for the assets of a mutual fund scheme?

AThe Asset Management Company (AMC).

BThe Board of Trustees of the mutual fund.

CThe Securities and Exchange Board of India (SEBI).

DThe Sponsor of the mutual fund.

Q5MCQHardCustodian's role and liability

Under what circumstance can a Custodian of a mutual fund be typically held liable for loss or damage to the securities held by it?

AOnly if the loss is due to unforeseen natural calamities (force majeure).

BIn all circumstances, as they are the ultimate holders of assets, irrespective of fault.

CIf the loss is caused by its own negligence, willful default, or fraud.

DOnly if the loss exceeds a pre-defined threshold agreed upon with the AMC.

Q6MCQMediumDuties and Responsibilities of Trustees

Which of the following is a primary responsibility of the Board of Trustees regarding the Asset Management Company (AMC)?

ATo directly manage the investment portfolios of the mutual fund schemes.

BTo ensure that the AMC has adequate infrastructure and systems to manage the mutual fund's operations.

CTo appoint the CEO and all key personnel of the AMC without consultation.

DTo determine the pricing of units for all new fund offers.

Q7MCQHardInter-entity Restrictions and Board Composition

Which of the following statements regarding the relationship between the Asset Management Company (AMC) and the Board of Trustees is FALSE?

ANo director of the AMC can be a trustee of the same mutual fund.

BNo trustee can be a director of the AMC of the same mutual fund.

CTrustees are appointed by the sponsor with the approval of SEBI.

DThe AMC board must have at least one-third independent directors.

Q8MCQHardKey legal documents - Trust Deed

Which of the following accurately describes the primary function of the 'Trust Deed' in the legal structure of a mutual fund?

AIt details the investment objectives, asset allocation, and risk factors for each specific mutual fund scheme.

BIt outlines the terms and conditions for the appointment of the Registrar and Transfer Agent (RTA) and their service level agreements.

CIt formally establishes the mutual fund as a trust, appoints the Board of Trustees, and vests the fund's assets in them.

DIt specifies the fees and expenses that the Asset Management Company (AMC) can charge to the mutual fund schemes.

Q9MCQEasyLegal Structure - Trust Deed

Which legal document primarily establishes the mutual fund as a trust and specifies the powers and duties of the Trustee, the Sponsor, and the AMC?

AInvestment Management Agreement

BCustodian Agreement

CTrust Deed

DOffer Document

Q10MCQMediumPowers and duties of Trustees

Which of the following is a specific power vested with the Board of Trustees regarding the Asset Management Company (AMC) of a mutual fund?

ATo manage the investment portfolio of the scheme on a day-to-day basis.

BTo approve all marketing materials and advertisements before their publication.

CTo appoint and dismiss the AMC with the approval of SEBI and 75% of the unitholders.

DTo decide the Net Asset Value (NAV) of all schemes daily.

Q11MCQHardRegistrar and Transfer Agent (RTA)

What is a mandatory regulatory requirement for a Registrar and Transfer Agent (RTA) providing services to a mutual fund in India?

AThe RTA must have a minimum paid-up capital of INR 100 crores.

BThe RTA must be a subsidiary of the Asset Management Company (AMC).

CThe RTA must be registered with SEBI.

DThe RTA must maintain all unitholder records in physical format only.

Q12MCQHardRestrictions and responsibilities of AMC

As per SEBI regulations, what is the maximum percentage of its own scheme's units that an Asset Management Company (AMC) can hold in its own books, other than seed capital or investments made to meet regulatory requirements?

AAn AMC cannot hold any units of its own schemes.

BUp to 5% of the total units of a scheme.

CUp to 10% of the total units of a scheme.

DUp to 25% of the total units of a scheme.

Q13MCQMediumRestrictions on Asset Management Company (AMC)

Under the SEBI (Mutual Funds) Regulations, 1996, an Asset Management Company (AMC) is generally prohibited from engaging in which of the following activities?

AProviding investment advisory services to the mutual fund schemes it manages.

BManaging venture capital funds or portfolio management services for other clients.

CActing as a trustee for any other mutual fund.

DEngaging in proprietary trading using its own funds.

Q14MCQEasyRole and responsibilities of Trustees

What is the primary and overarching duty of the Board of Trustees of a mutual fund?

ATo manage the investment portfolio of the mutual fund schemes.

BTo ensure that the Asset Management Company (AMC) acts in the best interest of the unitholders.

CTo distribute mutual fund units to investors.

DTo provide custodian services for the fund's securities.

Q15MCQMediumRole of ancillary service providers (Custodian)

Who is primarily responsible for the appointment of the Custodian for the assets of a mutual fund scheme?

AThe Sponsor of the mutual fund.

BThe Asset Management Company (AMC).

CThe Board of Trustees.

DSEBI (Securities and Exchange Board of India).

Q16MCQEasyRoles and responsibilities of mutual fund entities

In the legal structure of a mutual fund in India, who is primarily responsible for appointing the Asset Management Company (AMC)?

AThe Sponsor

BThe Custodian

CThe Board of Trustees

DSEBI

Q17MCQMediumSponsor Eligibility Criteria

As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum duration for which a sponsor must have a positive net worth in all immediately preceding five years, including profits in at least three of these five years, to be eligible to establish a mutual fund?

AImmediately preceding 3 years

BImmediately preceding 5 years

CImmediately preceding 7 years

DImmediately preceding 10 years

Q18MCQMediumSponsor's Eligibility Criteria

As per SEBI (Mutual Funds) Regulations, 1996, what is the minimum profitability track record required for an entity to act as a sponsor of a mutual fund?

AProfit-making for at least 3 out of the immediately preceding 5 years, including the fifth year.

BProfit-making for at least 3 out of the immediately preceding 5 years.

CProfit-making for at least 3 out of the immediately preceding 5 years, including the immediately preceding year.

DProfit-making for at least 2 out of the immediately preceding 3 years, including the immediately preceding year.

Q19MCQEasySponsor's Role and Responsibilities

As per SEBI (Mutual Funds) Regulations, 1996, which entity is primarily responsible for ensuring that the Asset Management Company (AMC) has adequate infrastructure and personnel to manage the mutual fund's operations?

AThe Board of Trustees

BThe Sponsor

CThe Custodian

DThe Registrar and Transfer Agent

Q20MCQHardTrust Deed and other legal documents

Which of the following aspects is NOT typically specified in the Trust Deed of a mutual fund?

AThe powers and duties of the Trustees.

BThe procedure for appointment and removal of the Asset Management Company.

CThe specific investment objectives and policies for each scheme launched by the fund.

DThe manner in which the trust property is to be held and administered.

Q21MCQMediumTrustee board independence

What is the minimum proportion of independent directors required on the board of a Trustee Company overseeing a mutual fund?

AAt least one-third of the directors

BAt least half of the directors

CAt least two-thirds of the directors

DAll directors must be independent

Q22MCQMediumTrustee independence and composition

To ensure effective oversight and safeguard unit holder interests, what is the minimum proportion of independent trustees required on the Board of Trustees of a mutual fund?

AAt least one-third of the trustees must be independent.

BAt least half of the trustees must be independent.

CAt least two-thirds of the trustees must be independent.

DAll trustees must be independent.

Q23MCQMediumTrustee's Independence

To ensure independence and prevent conflicts of interest in a mutual fund, SEBI (Mutual Funds) Regulations, 1996, specifically prohibit a director of the trustee company from also being a director of which other entity?

AThe Registrar and Transfer Agent (RTA)

BThe Custodian

CThe Sponsor Company

DAnother Asset Management Company (AMC)

Q24MCQMediumTrustee's Responsibilities and Oversight

Which of the following is a key responsibility of the Board of Trustees of a mutual fund, specifically pertaining to the Asset Management Company (AMC)?

AAppointing the statutory auditor for the mutual fund.

BEnsuring that the AMC has adequate systems in place for managing risks and preventing conflicts of interest.

CApproving the annual marketing budget of the AMC.

DDeciding the investment strategy for each scheme launched by the AMC.

Q25MCQMediumTrustees and their composition

What is the minimum proportion of independent directors required on the Board of Trustees of a mutual fund as per SEBI regulations?

AAt least one-third of the total trustees

BAt least half of the total trustees

CAt least two-thirds of the total trustees

DAll trustees must be independent

About this content: These practice questions are based on the NISM-Series-VD: Mutual Fund - Specialised Investment Fund Distributors Certification Examination Workbook published by the National Institute of Securities Markets (NISM), Mumbai (March 2026 edition). NISM is a SEBI-established institution. Questions cover Chapter 3: Legal Structure of Mutual Funds in India with verified answers and explanations. BullWiser is an independent exam preparation platform — not affiliated with NISM, SEBI or AMFI. Last updated: July 24, 2026.

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Multiple Choice Questions (25)

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