Trustee

Most Category III AIFs in India are structured as trusts, and a trust needs someone whose job is to hold it together in law. A settlor settles the trust and conveys the initial sum to the trustee, who executes the trust deed.

The trustee does not manage the money — that job belongs to the investment manager. Instead, the trustee delegates its powers of management and administration to the manager through an Investment Management Agreement, while retaining certain powers of its own and standing as the fund's legal anchor in dealings with SEBI, custodians and auditors.

The chain runs: settlor settles the trust → trustee executes the trust deed → trustee enters an Investment Management Agreement (IMA) with the manager, delegating management and administration powers except for retained powers named in the trust deed (the Indenture of Trust).

The trustee's operational role includes appointing the custodian for the fund (in a trust structure, the custodian is appointed by the trustees, and a custodial agreement is signed between them), and receiving the results of statutory checks on the fund. When the Category III AIF's annual audit is completed, the findings — along with any corrective steps — must be communicated to the Trustee or Board or Designated Partners of the AIF, the board of the investment manager, and SEBI, within 6 months from the end of the financial year.

In a limited liability partnership structure, there is no trustee at all — the sponsor takes the role of Designated Partner instead, and in a company structure the sponsor's equivalent sits on the board. The trustee is specifically a feature of the trust route, which the workbook notes is how most Category III AIFs in India are actually constituted, largely for the tax benefits available to a trust under the Income Tax Act, 1961.

Meridian Quant Trust is settled by its sponsor as settlor, which conveys an initial sum to Meridian Trustee Services Pvt Ltd, the trustee. The trustee executes the trust deed and then signs an Investment Management Agreement with Meridian Investment Managers LLP, delegating day-to-day portfolio management — but retaining, under the trust deed, the power to approve any change in the fund's custodian.

At the end of the financial year (31 March), the fund's auditor completes the mandatory PPM compliance audit and finds that the management fee was over-charged for two quarters. The auditor's findings, together with the corrective step (a refund to the affected investors), must reach Meridian Trustee Services, the board of Meridian Investment Managers LLP, and SEBI by 30 September — within six months of the 31 March year end.

Separately, when the fund needs a custodian for safekeeping its dematerialised securities, it is the trustee — not the investment manager — who signs the custodial agreement, because the custodian in a trust-structured Category III AIF is appointed by the trustees.

Chapter 4 (Category III AIF: Fund Structures and Service Providers), section 4.1, sets out the trust chain from settlor to trustee to manager, and section 4.2.9 gives the 6-month audit reporting deadline that runs through the trustee. Expect questions on who appoints the custodian in a trust structure (the trustees), what document delegates management powers (the Investment Management Agreement), and the audit reporting timeline.

• The trustee is not the investment manager. The trustee holds the trust in law and delegates management to the manager — it does not pick investments.
• The trustee exists only in a trust structure. An LLP has a Designated Partner instead; a company has its board.
• In a trust, the custodian is appointed by the trustees, not by the sponsor or manager directly — a distinction the workbook draws explicitly against the general rule that the sponsor or manager appoints the custodian.
• Audit findings go to the trustee within 6 months of financial year end, together with the manager's board and SEBI — mixing this figure up with other reporting deadlines in the same chapter is a common error.