Archive / Mutual Fund Distributors / Legal Structure of Mutual Funds in India

nism-series-va-trustee-independent-directors-two-thirds[ MUTUAL FUND DISTRIBUTORS ]

Under SEBI (Mutual Funds) Regulations, what is the mandatory minimum proportion of independent directors required on the Board of Directors of a Trustee Company of a mutual fund?

[ A ]Exactly 25% of the directors must be independent

[ B ]At least 50% of the directors must be independent

[ C ]At least two-thirds (66.67%) of the directors must be independent[ CORRECT ]

[ D ]All directors must be executive employees of the Sponsor

Takeaway

Option C is correct: At least two-thirds (66.67%) of the directors must be independent

Derivation

To ensure robust governance and protect unitholders' interests, SEBI (Mutual Funds) Regulations mandate that at least two-thirds (2/3) of the trustees on the Board of Trustees or Board of Directors of the Trustee Company must be independent persons who are not associates of the sponsor, the AMC, or the trustee company itself. In contrast, the AMC board requires at least 50% independent directors. This question tests critical governance proportions. The most common candidate error is confusing the 2/3rd trustee independence rule with the AMC's 50% independence rule.

Why the others fail

A — Exactly 25% of the directors must be independent

A 25% independence ratio fails the statutory two-thirds independence mandate required for mutual fund trustee boards.

B — At least 50% of the directors must be independent

50% independent directors is the statutory minimum requirement for the AMC Board, whereas the Trustee Board mandates at least two-thirds.

D — All directors must be executive employees of the Sponsor

Having all directors from the Sponsor violates SEBI regulations; trustees must remain independent from sponsor executive control.