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PALAK SHAH SEBI has called for a meeting of independent trustees of mutual funds on July 25. Such a meeting, which is being held by SEBI after a gap of nearly four years, is crucial in the backdrop of its recent adverse order against ICICI MF for bailing out the IPO of ICICI Securities and the decision to hold back the ₹3,500-crore IPO of HDFC MF due to front-running and violation of securities law by its employees in the past.
Independent trustees are like first-level regulators for mutual funds and SEBI is in a mood to reprimand them for their oversight on crucial issues recently, sources told BusinessLine . The meeting is also to discuss and take suggestions from the trustees for making MFs investor-friendly and know their views on the scenario post-restructuring of MF schemes, the sources said.
A SEBI initiative
Apart from putting the HDFC MF IPO in abeyance, SEBI recently asked ICICI MF to refund ₹240 crore that it had invested at the last moment in the IPO of ICICI Securities when it fell short of subscription.
The concept of appointment of trustees on the board of the asset management company was introduced by SEBI more than a decade ago to ensure a first-level regulator for institutions that manage thousands of crores in public money. While the AMCs manage operations of MFs, the trustees act as supervisors. AMCs are required to send periodical compliance reports to the trustees, who in turn send them to SEBI with views, wherever possible. Boards of AMCs and trustees are supposed to meet periodically to review the operations of MFs.
In most cases, trustees are privy to information pertaining to the conduct of business by AMCs. Their role is crucial to avoid conflicts of interest in MFs. Another objective of the trustees is to hold the property of the AMCs for the benefit of the unit holders. Trustees are further required to spell out responsibilities of the AMC, monitor new schemes introduced and ensure full compliance with regulatory guidelines.
Every fund house is required to appoint at least four trustees out of which two-thirds are required to be independent.
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