The Hindu Business Line : SEBI to look into conflict of interest between AMCs, trustees

Area of concern
There should be arm’s length relationship between a trustee company and AMC, which is not the case in many mutual funds, says Mr Vijay Gokhale, a mutual funds expert

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Mumbai, July 7 The conflict of interest between sponsors of mutual funds, its trustees and the asset management company (AMC) may come under the scanner of market regulator Securities and Exchange Board of India (SEBI).

The Ministry of Corporate Affairs has, in a recent letter to SEBI, urged the regulator to examine the issue. The development follows a representation made by a mutual fund expert, Mr Vijay Gokhale.

Representation

In his representation to SEBI and the Ministry, Mr Gokhale said that many AMCs carry out practically all activities pertaining to the fund on behalf of the trustees.

The AMC is virtually the face and mouthpiece of the fund, he added.

The reason for concern here is because, trustees are expected to be the first level of regulators to safeguard the interest of mutual fund investors, a market expert observed.

The reports submitted by the trustees to SEBI on the functioning of the AMC, rely heavily on data provided by the AMC, Mr Gokhale claimed.

It is difficult to visualise how trustees discharge various responsibilities without their own staff.

There should be arm’s length relationship between a trustee company and AMC, which is not the case in many mutual funds, he points out.

Mutual funds in practice do not have employees and even the trustee companies do not have employees. In fact, only the AMC has employees to manage the interest of the mutual fund, said a tax expert.

Some industry representatives, however, say that AMCs and mutual funds have similar objectives and so there cannot be a conflict of interest.

But others in the industry agree with Mr Gokhale’s complaint that there is conflict of interest as the trustees are appointed by the AMC, besides being regulated and controlled by it.

In a way, the trustees owe their job to the AMCs, said a market expert. By the very nature of appointment and compensation they are controlled by AMCs.