How do mutual funds work?

A trust is used to establish a mutual fund. It has Sponsor, Trustees (AMC), Asset Management Company (AMC), and Custodian. A sponsor (or more than one sponsor) establishes the trust. They are similar to promoters of companies and registered with Securities and Exchange Board of India. The mutual fund's trustees hold the property of the mutual fund for the benefit of unit holders. The SEBI approved Asset Management Company (AMC), manages the funds through various investments in securities. The securities of different schemes (2) are held in the custody of custodian, who has been registered with SEBI. The general power to superintendence over and direction of the AMC is vested in the trustees. They ensure compliance with SEBI regulations by mutual funds. SEBI Regulations stipulate that at least 2/3 of directors of trustee companies or boards of trustees must remain independent. They should not be affiliated with sponsors. AMC directors must also be independent at 50%.