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How a fund is built · 6 min

The sponsor

The promoter who starts the fund

The sponsor is the party that starts the whole thing, so SEBI vets it the hardest, and the exam rewards knowing the exact tests. Above all, the sponsor must have a sound track record and a reputation for fairness and integrity. That reputation is then backed by hard numbers on its finances.

Three financial tests do most of the work. First, the sponsor must have a positive net worth, share capital plus reserves minus accumulated losses, in all of the immediately preceding 5 years. Second, it must have an average net annual profit (after depreciation, interest and tax) of at least ₹10 crore over those five years. Third, its positive liquid net worth must be more than the capital it proposes to contribute to the AMC, so it can genuinely stand behind the venture rather than promise from an empty pocket. SEBI also allows a well-capitalised sponsor route for applicants that cannot show the profit track record but bring the financial strength instead.

One modern wrinkle is worth knowing: the self-sponsored AMC, a route that lets a qualifying, established AMC operate without a traditional sponsor, subject to SEBI’s conditions. Keep the three tests, five years of positive net worth, ₹10 crore average profit, and liquid net worth above the contribution, firmly in mind, and the sponsor questions become straightforward marks.

Sponsor eligibility follows the current SEBI Mutual Fund Regulations; confirm the edition in force before your exam. Education for the NISM Series V-A exam, not financial advice.

  1. 1

    The sponsor is the promoter who sets up the mutual fund, much like the promoter of a company.

  2. 2

    SEBI vets the sponsor hardest, it must have a sound track record and a reputation for fairness and integrity.

  3. 3

    The sponsor must have a positive net worth (share capital plus reserves minus accumulated losses) in all of the immediately preceding 5 years.

  4. 4

    It must have an average net annual profit (after depreciation, interest and tax) of at least ₹10 crore over those preceding 5 years.

  5. 5

    Its positive liquid net worth must be more than the capital it proposes to contribute to the AMC.

  6. 6

    SEBI also allows a well-capitalised sponsor route for those that do not meet the profit track record, subject to its conditions.

  7. 7

    A newer option, the self-sponsored AMC, lets a qualifying AMC operate without a traditional sponsor.

Rupee example

A bank wanting to start a mutual fund must show a positive net worth across each of the last five years, an average net profit of at least ₹10 crore over that period, and liquid net worth exceeding what it will put into the AMC, and only then does SEBI let the fund open.

Practice

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Real exam format. Answer by voice, tap, or press 1 to 4. No negative marking, so always attempt.

Who is the sponsor of a mutual fund?

The sponsor is the promoter, the party that sets the fund up. The manager, investors and custodian are separate roles.
The manager runs the money, investors buy units, and the custodian holds the securities.

Over the immediately preceding five years, a sponsor must show an average net annual profit of at least:

The sponsor must have averaged at least ₹10 crore in net annual profit (after depreciation, interest and tax) over the preceding five years.
₹1 crore is too low; ₹50 crore is the AMC net-worth figure; ₹100 crore is not the test.

Which is a sponsor eligibility condition?

A positive net worth in each of the preceding five years is required, along with the profit track record. Listing, investor counts and a banking licence are not.
None of a listing, an investor count or a banking licence is a sponsor test.

The sponsor's liquid net worth must be:

Its positive liquid net worth has to exceed the capital contribution it proposes to make to the AMC, so it can genuinely stand behind it.
It need not equal the AMC's net worth, cannot be zero, and there is no gold requirement.

An AMC that runs without a traditional sponsor is called:

The self-sponsored route lets a qualifying AMC operate without a separate sponsor, subject to SEBI's conditions.
The other terms are not real categories.
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