Why Most Indian AIFs Are Structured as Trusts — and What That Means for Governance
The majority of AIFs in India are structured as trusts, with a trustee holding fund assets in a fiduciary capacity for the benefit of investors (beneficiaries), while day-to-day investment decisions are delegated to a separate investment manager. This split — trustee for oversight, manager for execution — is a deliberate governance design, not a formality.
Core Trustee Responsibilities
1. Oversight of the Investment Manager
The trustee is responsible for ensuring the investment manager operates within the bounds of the PPM and applicable SEBI regulations — not for making investment decisions itself, but for holding the manager accountable to what investors were promised.
2. Safeguarding Fund Assets
Fund assets are legally held by (or on behalf of) the trustee for the benefit of investors, distinct from the investment manager's own assets — a structural protection against commingling.
3. Compliance Oversight
Trustees are expected to satisfy themselves that the fund's SEBI regulatory filings, investor reporting, and other compliance obligations are being met — not necessarily performing these tasks directly, but exercising oversight that they're being done.
4. Approving Material Actions
Certain fund actions — such as tenure extensions, material changes to the PPM, or specific conflicted transactions — typically require trustee approval or investor consent facilitated through the trustee, as specified in the trust deed and PPM.
5. Acting in Investors' Interest
The overarching trustee duty is fiduciary — to act in the interest of fund investors (beneficiaries) rather than the sponsor or manager, even though in practice the trustee is often appointed by the sponsor at fund formation.
How Trustee Duties Differ From the Investment Manager's Role
The investment manager makes and executes investment decisions, sources deals, and manages portfolio companies. The trustee does not perform these functions — its role is oversight and fiduciary stewardship, not portfolio management.
Professional/Corporate Trustees vs Individual Trustees
Many AIFs appoint a professional corporate trustee (a SEBI-registered trustee company) rather than individual trustees, given the scale of fiduciary responsibility and the need for institutional continuity over a fund's multi-year life.
Why This Governance Layer Matters to Investors
For sophisticated investors diligencing a fund, the strength and independence of the trustee arrangement is a genuine risk indicator — a trustee that exercises real oversight, rather than a passive formality, is meaningfully protective of investor interests.
How We Support Trust-Structured AIFs
We work alongside trustees and investment managers to ensure compliance reporting, financial statements, and PPM-mandated approvals are properly documented and available for trustee sign-off.
This article is for general informational purposes and does not constitute legal advice on trustee duties or liability.