The 3-tier structure under mutual funds stands for:
- The sponsor- the person who thinks to start the mutual fund. Under this the sponsor first approaches the SEBI in order to put his idea into action.
- The public trust- they does not manage but only keeps an eye to see whether money is being correctly utilized or not and they are seen as the internal regulators of a mutual fund. Sponsor creates the public trust which is managed by the people who are authorized to act on behalf of the Trust known as trustees.
- Asset Management Company- It manages the money of investors and they functions under the supervision of its Board of Directors, and also under the direction of the Trustees and SEBI. The AMC is approved by the SEBI and has atleast 50% of independent directors. The AMC only which in the name of the Trust, floats new schemes and manage these schemes by buying and selling securities.