Large MFs less likely to confront promoters in voting on resolutions

Fund houses are becoming assertive in general and the trend could be helping corporate governance

Mutual funds are becoming more assertive with companies they have investments in, but the largest ones are less likely to take confrontational positions.

The biggest fund houses have voted against a lower share of company resolutions than the rest of the industry, according to a Business Standard analysis of data on more than 90,000 resolutions from primemfdatabase.com. The analysis covered aggregate data on resolutions voted upon by all mutual fund houses. The top five mutual funds opposed 8.1 per cent of resolutions in the financial year 2023-24 (FY24) compared to 9.1 per cent by the rest of the industry. Industry group Association of Mutual Funds in India (AMFI) has 44 members. This has been the trend in four out of the last five years (chart 1).

Mutual funds (all combined) voted against 8.8 per cent of resolutions in FY24, the highest in data going back to FY15, when the figure was 4.5 per cent. The lowest was 1.9 per cent in FY18. Opposition increased after a regulation required mutual funds to compulsorily vote on company resolutions from FY23. It was up to the mutual funds to decide on voting patterns earlier.

Increased opposition may also reflect the rising clout of mutual funds relative to the majority owners – promoters – of companies. Mutual funds managed around Rs 2 trillion worth of assets, equivalent to roughly 11 per cent of the stake held by promoters in National Stock Exchange companies in 2010, shows back-of-the-envelope calculations. The value of their stake increased to Rs 34 trillion as of March 2024, equivalent to 22 per cent of promoters’ stake. The ratio does not consider companies in which there may not be a defined promoter; it also excludes government companies. But it gives a broad idea of the growing influence of mutual funds (chart 2).

Institutional investors’ voting on resolutions may help improve governance practices at smaller companies. Investments in small cap and mid cap schemes mean that mutual fund holdings extend far beyond the top 500 stocks. Mutual funds have invested in more than 1,000 listed companies as of March 2024 (chart 3).

And their investing universe is only getting larger. The number of companies in which mutual funds invest has risen for eleven months straight.