SEBI Declines to Approve Family Trusts as Mutual Fund Sponsors, Remains Mum on Capital Structuring Issues

SEBI Clarifies Rules on Mutual Fund Sponsors

The Securities and Exchange Board of India (SEBI) has issued a clarification on the eligibility of family trusts as sponsors of mutual funds. In an interpretive letter issued under the Informal Guidance Scheme, 2025, the regulator stated that family trusts cannot act as sponsors of mutual funds due to their non-compliance with the Mutual Fund Regulations, 2026.

According to SEBI, a sponsor must be a body corporate, and since a family trust does not qualify as a body corporate, it cannot sponsor a mutual fund. The clarification came in response to a query from First Water Capital Advisory LLP, which had sought guidance on the matter.

SEBI also declined to provide guidance on a key question regarding capital structuring for new asset management companies (AMCs). Specifically, the regulator chose not to address whether a sponsor could meet the Rs 150 crore net worth requirement for AMC registration under Route 2 through a mix of equity and redeemable preference shares.

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The regulator's stance on sponsor eligibility emphasizes its focus on clear ownership structures and regulatory accountability in the mutual fund industry. However, SEBI's refusal to provide guidance on capital structuring has left uncertainty around permissible capital structures for new entrants, particularly those exploring hybrid funding models.

Comparison of Mutual Fund Regulations

The Informal Guidance Scheme, 2025, which governs SEBI's responses to queries, states that in certain cases, the regulator may choose not to respond due to policy concerns. In this instance, SEBI cited paragraph 11(h) of the IG Scheme 2025 as the reason for not providing guidance on capital structuring.

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