Trusteeship Fees
Also written Trusteeship Fee · Trustee fees
The fee an AIF set up as a trust pays its trustee under the offer letter — typically a fixed Rs 1 lakh to Rs 5 lakh a year, with 18% GST on top that the fund may not be able to recover.
In plain language
Most Indian AIFs are trusts. A trust cannot act for itself — the trustee holds the trust and acts on its behalf, and the trustee signs the Investment Management Agreement that hands day-to-day management to the manager.
The trustee charges for that role. The charge is the trusteeship fee: agreed with the trustee in its offer letter, and usually a fixed annual amount rather than a percentage of assets.
It is small next to the management fee, but it is a cost every investor bears, it attracts GST, and it is one of the expenses the workbook tells investors to cap.
How it works
The amount. Chapter 9 says trusteeship fees are to be in accordance with the terms agreed with the trustee in the offer letter, and are typically a fixed fee in the range of Rs 1 lakh to Rs 5 lakh per year, depending on the size of the fund.
The tax. GST applies at 18% to trusteeship fees, as it does to the management fee and to the fees of the administrator, registrar, custodian, auditor, legal and investment advisers. An AIF provides no output services and so does not necessarily collect GST, which means the GST it pays may not be recoverable as input credit — it is a straight cost to investors.
The negotiation. Trusteeship fees are listed first among the avoidable expenses that sit inside operational and organisational expenses — with professional fees, administrative costs, the manager's out-of-pocket expenses and third-party fees. The workbook's advice is that investors should negotiate a cap on such expenses, and that the best case is to have them netted off against the management fee already being paid.
Where the trustee sits. In the trust structure the settlor settles the trust and appoints the trustee by executing the trust deed; the trustee enters into the Investment Management Agreement with the manager. On a material change or change of control, the trustee (where the AIF is a trust) oversees the exit process for dissenting investors and keeps SEBI updated.
A contradiction to know about. Example 9.6 in the same chapter uses a trusteeship fee of Rs 73,50,000 for a Rs 98 crore fund — far outside the Rs 1 lakh to Rs 5 lakh range stated a few pages earlier. The example is there to show GST arithmetic, not typical fee levels. For a recall question on the typical range, answer Rs 1 lakh to Rs 5 lakh a year; for a computation, use the figure you are given.
The formula
Trusteeship fee payable = Agreed fee + GST at 18%
Cost as % of corpus = Trusteeship fee payable / Corpus
A worked example
Two funds, two fees.
Fund P (illustrative) is a Rs 150 crore Category II trust paying a trusteeship fee of Rs 4 lakh a year — inside the workbook's typical range.
| Line | Rs |
|---|---|
| Trusteeship fee | 4,00,000 |
| GST at 18% | 72,000 |
| Total | 4,72,000 |
That is about 0.03% of corpus (4,72,000 ÷ 1,50,00,00,000 = 0.0315%).
Fund N is the workbook's Example 9.6: corpus Rs 98 crore, trusteeship fee Rs 73,50,000.
| Line | Rs |
|---|---|
| Trusteeship fee | 73,50,000 |
| GST at 18% | 13,23,000 |
| Total | 86,73,000 |
That is about 0.89% of corpus on the trustee alone. Across all of Fund N's service providers and its manager, total GST comes to Rs 79,63,200 — 0.81% of the Rs 98 crore NAV — and none of it comes back as input credit.
The lesson the workbook draws from Fund N is about GST drag. The lesson an investor should draw from the pair is to read the offer letter: a trustee fee twenty times the typical range is exactly the kind of expense the chapter tells investors to cap.
Why NISM asks about it
Chapter 9 (Fee Structure and Fund Performance) gives the typical range in its list of fund expenses, lists trusteeship fees among the avoidable expenses to negotiate, and uses them in Example 9.6 on GST; section 9.8.2 repeats that trusteeship fees carry 18% GST. Chapter 8 places the trustee in the trust structure and Chapter 15 gives it the oversight role in the exit process. Expect a recall question on the typical range and on GST, and a computation that adds 18% to a list of service-provider fees.
Common exam traps
- Typically fixed, not a percentage of assets. The management fee is a percentage; the trusteeship fee is a flat amount that depends on fund size.
- Rs 1 lakh to Rs 5 lakh a year is the typical range — not per scheme per quarter, and not a regulatory cap.
- GST is 18% and is usually not recoverable by the fund, because an AIF does not provide output services.
- The trustee is not the manager. The trustee delegates management to the manager through the Investment Management Agreement; the trustee does not appoint the custodian — the sponsor or manager does.
- Example 9.6 uses Rs 73,50,000. Do not let it overwrite the typical range in a recall question.
- In Example 9.6 the GST lines on every service provider are labelled "GST on Management Fees" — a labelling slip. The 18% applies to each provider's own fee.
Where this is taught
- Series XIX-C · Chapter 9: Fee Structure and Fund Performanceintroduced here
- Series XIX-D · Chapter 6: Fee Structure of AIFsintroduced here
Related terms
- CustodianThe SEBI-registered entity that holds a fund's securities in accounts of its own and settles its trades, so the assets sit somewhere other than with the manager who decides what to buy.
- Irrevocable trustA trust whose settlor cannot take the property back, which is why the workbook records that it is protected from the settlor's bankruptcy and usable to secure the interests of dependents.
- Obligations of trusteesThe duties SEBI places on a mutual fund's trustees: hold scheme property in trust, review every AMC-associate transaction quarterly, and certify to SEBI half-yearly that nothing improper happened.
- Net returnThe return on an AIF's NAV after fund expenses, costs and management fees — measured before incentive fees (pre-incentives) or after them (post-incentives, what the investor actually keeps).
- SettlorThe party who brings an AIF trust into existence — executing the trust deed with the trustee and conveying the initial sum that becomes the trust's first asset.
- Management FeeThe fixed annual fee an AIF pays its investment manager for managing the fund — charged on committed capital in Category I and II funds and on gross NAV in Category III, regardless of performance.
- Set-up CostThe one-time cost of forming the fund and issuing its units, charged to investors as a percentage of capital commitments — up to 1.5% or 2.5% — and usually amortised over the first 36 months.
- Change of controlA change in who controls an AIF's sponsor or manager — majority board appointment or control of management for a company, or a 50% controlling interest otherwise — needing SEBI approval and an investor exit.
- Transaction ExpensesCosts of buying, selling or disposing of a Category III AIF's investments — brokerage, depository and custodian transaction charges, STT and exchange charges — borne by the fund and allocated pro-rata across classes.