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Focus on MF accountability

Mumbai, March 24: The 45 fund houses in India will soon have to disclose every quarter how they voted on resolutions moved at shareholders’ meetings of investee companies, emulating a practice that built the bulwark for shareholder activism in the US.

The Securities and Exchange Board of India (Sebi) today said the asset management companies (AMCs) will have to disclose specific rationale behind their voting decision (for, against or an abstention) with respect to resolutions moved at the annual general meeting/extraordinary general meeting of their investee companies.

These include matters such as mergers, corporate restructuring, changes in capital structure, appointment and removal of directors or any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular.

Moreover, AMCs will additionally have to publish a summary of the votes cast across all its investee company and its break-up in terms of total number of votes cast in favour, against or abstained from.

They will be required to make voting disclosures on their website on a quarterly basis, within 10 working days from the end of the quarter. The voting details will also have to disclose their voting records in the their annual reports.

Sebi issued the directive as part of the notification of its non-tax proposals relating to its long-term policy for mutual funds in India.

While mutual funds are one of the major institutional investors in companies, there have been instances of fund houses opposing some of the decisions made by corporate India.

The more recent example has been that of Maruti Suzuki where around seven mutual funds strongly opposed the move by Suzuki Motor Corp to set up a fully owned manufacturing plant in Gujarat, which would effectively turn its existing listed entity into a mere trading arm of the Japanese auto maker.

The market regulator has also told mutual funds that on an annual basis, they will have to obtain auditors’ certification on the voting reports being disclosed by them. Such certification shall be submitted to trustees and also disclosed in the their annual reports and websites.

Sebi added that the board of AMCs and trustees of mutual funds would be required to review and ensure that AMCs had voted on important decisions that might affect the interest of investors and the rationale recorded for vote decision was prudent and adequate.

“The confirmation to the same, along with any adverse comments made by auditors, shall have to be reported to Sebi in the half yearly trustee reports,” it observed.

Sebi allowed mutual funds to use the distribution network of banks to sell their products. It also permitted them to sell their products online.

 
 
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