MF participation in voting to be scrutinised: Sebi

The regulator also increases the limit that debt schemes of mutual funds can invest in housing finance companies

To encourage asset management companies (AMCs) to vote on important company decisions and be an active voice for the retail investor, the Securities and Exchange Board of India (Sebi) on Tuesday directed them to appoint ‘scrutinisers’, who will review the rationale of voting rights exercised by them.

In a letter sent to all fund houses, Sebi said: “On an annual basis, AMCs shall be required to obtain certification on the voting reports being disclosed by them. Such certification shall be obtained from a scrutiniser.”

The board of AMCs and Trustees of Mutual Funds shall be required to review and ensure AMCs have voted on important decisions that might affect the interest of investors and the rationale recorded for vote decision is prudent and adequate. “The confirmation to the same, along with any adverse comments made by the scrutiniser, shall have to be reported to Sebi in the half-yearly trustee reports,” the letter said.

A scrutiniser may be a chartered accountant, cost accountant, a company secretary or an advocate, but not in employment of the company and is a person of repute who, in the opinion of the Board, can scrutinise the e-voting process in a fair and transparent manner.

In 2014, the market regulator had asked mutual fund houses to disclose the rationale of voting in the companies and publish the summary of the votes cast across all investee companies and break-up in terms of favour, against, and abstained from. In addition, it had also directed fund houses to obtain auditor’s certificate annually on voting reports and disclose it in annual reports and websites. However, it has now decided that a scrutiniser will also review the rationale and make comments.

The market regulator’s latest direction is yet another by attempt fund houses to participate actively and use their voting wisely when it comes to corporate decisions, say fund houses. “It does seem like micro-management by Sebi, but given the fact that fund houses are managing retail investors’ money and they have significant stake in several of them, it is quite apt that they provide regular feedback to investors and regulators,” said an industry expert.

Mutual fund houses have, in the past, been accused of not participating actively. E-voting, which was introduced in 2012, allowed voters to record their choice electronically without actually being present at the annual general meeting. Till then, not many Indian asset managers participated in corporate resolutions actively. They simply abstained from voting.

In the same circular, Sebi also increased the limit that debt schemes of mutual funds can invest in housing finance companies. Earlier, the guidelines for sectoral exposure in debt-oriented mutual fund schemes had put a limit of 25 per cent at sector level and an additional exposure not exceeding five per cent (over and above the limit of 25 per cent) in financial services sector only to housing finance companies (HFCs). “In light of the role of HFCs, especially in the affordable housing space, it has now been decided to increase additional exposure limits provided for HFCs in the financial services sector from five per cent to 10 per cent,” the circular said.