In a move that should give a fillip to shareholder activism and improve corporate governance in listed companies, the Securities and Exchange Board of India (Sebi) today asked mutual funds (MFs) to disclose some of their general procedures, such as proxy voting, in investee companies.
It asked MFs to disclose the actual exercise of proxy votes in annual and extraordinary general meetings of investee companies in terms of changes in capital structure, stock option plans, social and corporate responsibility issues, appointment and removal of directors, merger/corporate restructuring and anti-takeover provisions.
Sebi also asked asset management companies (AMCs) to disclose their general policies and procedures for exercising voting rights in respect of companies in which they had invested, on their own websites as well as in annual reports distributed to unit-holders from 2010-11. The issue of corporate governance and the role played by institutional investors has been hogging the limelight after the Satyam Computer (now Mahindra Satyam) scandal in January 2009.
Sebi has also allowed MFs to extend the Asba (applications supported by blocked amount) facility for new fund offerings (NFOs) launched on or after July 1, 2010. Asba was initially started for initial public offer payments. Under this, an investor’s funds leave his bank account only on allocation of shares.
To make the NFO process more efficient, Sebi has reduced the timeline from 45 days for close-ended schemes and 30 days for open-ended schemes to 15 days. However, ELSS (equity-linked savings) schemes will continue to follow the government of India guidelines. Fund houses will have to allot units, refund money and dispatch statements of accounts within five business days from the closure of their NFOs.
Sebi has also barred fund houses from entering into any revenue-sharing arrangement with offshore funds as this leads to a conflict of interest. Any commission/brokerage received from the underlying fund will have to be credited into the account of the scheme concerned. Sebi observed that AMCs were entering into revenue-sharing arrangements with offshore funds in respect of investments made on behalf of Fund of Funds’ schemes. It clarified that MFs could not collect additional management fees for any of the schemes. Fund houses have also been asked to stop paying dividends from the unit premium reserve. On brokerage and commission paid to associates, Sebi has said that fund houses should disclose the brokerage/commission paid to associates, employees or relatives.
