Amid the growing scale of the mutual fund industry, capital markets regulator SEBI has proposed to enhance the role and accountability of trustees to protect the interests of unitholders.
Apart from this, the regulator has suggested increasing the accountability of the board of the Asset Management Company (AMC).
Also, SEBI has proposed a common platform for dissemination of public announcements by mutual funds.
In order to have an independent review mechanism for the decisions of the AMC from the point of view of the interest of unitholders in all products and services, SEBI has proposed to mandate that “Unit Holders Protection Committee (UHPC) should be constituted by the Board of the AMC “.
In its consultation paper, SEBI has suggested that trustees of mutual funds should look into market abuse by AMCs, its employees and mis-selling by AMCs to inflate the asset base.
Also, the trustees should be responsible for the fairness of the fees and expenses incurred by the AMC, compare its performance with that of peers and ensure that no undue advantage is being given to the sponsor of the AMC. Apart from the core areas, the trustees should also be responsible for periodically reviewing the steps taken by the AMC for those folios which do not have all KYC features including bank details. Further, SEBI has suggested that the trustees and their resource persons should independently assess the extent of compliance by the AMC and should not rely solely on the assurances of the AMC.
To facilitate the supervision of the trustees, the AMC should provide analytical information to them.
Currently, trustees are primarily relied upon by AMCs to ensure compliance with applicable regulations.
Under the rules, the trustees hold the assets of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC for the mutual fund to run the schemes and manage the funds raised under the various schemes as per the investment objectives.
“Given the growing scale and reach of the mutual fund industry, the role of trustees with regard to protection of unitholders becomes all the more important,” SEBI said on Friday.
The mutual fund industry has grown five times in size in the last decade. Assets under management (AUM) to grow from ₹7.93 lakh crore in November 2012 to ₹39.89 lakh crore in December 2022.
To ensure that the trustees devote time and attention to their core responsibilities, SEBI has suggested that in order to fulfill other responsibilities, the trustees may engage professional firms such as audit firms, law firms, merchant bankers to carry out due diligence on their behalf. can rely on.
SEBI has also listed certain duties that the trustee can delegate to the AMC. This includes ensuring that all systems are in place prior to the launch of any scheme by the AMC, and computing any income to the mutual fund attributable to the fund and any income received by the unitholders in the mutual fund.
The regulator has proposed to provide one year’s time to the existing trustees with board of trustee structure to convert into a trustee company from the point of view of governance.
Currently, two structures are permitted for trustees – corporate and board of trustees structure. Furthermore, there are some mutual funds that have a board of trustees structure while all other mutual funds have adopted a trustee company structure of trustees.
Keeping in view the increased role of trustees over a period of time, SEBI has suggested to increase the minimum number of trustees to perform their functions adequately. At present, the minimum number of prescribed trustees is four.
Also, it has been proposed that the chairman of the trustee company should be an independent director.
SEBI has suggested that in addition to the meeting of the audit committee of the AMC and the trustees (comprising mostly independent directors), the board of the AMC and the board of trustees may be mandated to meet at least once a year to ensure mutual issues can be discussed. Wealth.
The regulator proposed that the existing MF regulations on AMC and its obligations may be amended to include additional clauses regarding the obligations of the board of AMCs.
The proposed amendment may include a clause that casts an onus on the Board of the AMC to ensure that all activities of the asset management company are in accordance with the provisions of these regulations.
SEBI has sought comments from the public on these proposals till February 24.