SEBI’s Ajay Tyagi to meet MF trustees on August 27

Amid the credit crisis in the domestic market and questionable deals stuck by some fund houses, SEBI Chairman Ajay Tyagi will address mutual fund trustees for the first time at an annual meet of the Association of Mutual Funds in India (AMFI), in Mumbai on August 27. Tyagi will lecture the trustees the nodal body for MFs in the country, and ask them to ‘rise up to their role in discharging their duties’. Recently, there have been multiple instances of MF violations that trustees did not highlight on time, experts say.

The trustees are being invited for the first time at the AMFI annual meet on the suggestion of SEBI, sources in the know told BusinessLine . Usually, the AMFI annual meet hosts MF managers and compliance officers, but this time it will be different, sources said.

Trustees mainly represent SEBI and market investors on the boards of MFs. The role of the trustees came under the scanner after they failed to raise any alarm on the private deals made by certain MFs with corporates and also when funds failed to liquidate the equity portfolio of close-ended schemes on or before the date of maturity. There have been instances of MFs misleading investors by reporting incorrect data on investor complaints in their fund house annual reports and also presenting the performance of select schemes that did well, while omitting the rest.

A glaring example of how trustees failed miserably can be seen in SEBI’s inspection report. SEBI found that MFs failed to report over-the-counter trades in debt securities on the reporting platform according to norms that affected price discovery and valuations. Instances of non-disclosure of transactions in debt and money market securities galore.

There was no system to segregate between new and existing investors by MFs that led to additional transaction charges being laden by fund houses on investors. Also, it was found that compliance officers had delegated their responsibility to other staff. Redemption requests were processed without PAN details. SEBI has a long list of such violations and Tyagi will mainly base his lecture on pushing the trustees to be more vigilant and vocal.

The MF industry is facing a crisis that has been attributed to fund managers lending to company promoters via debt schemes. The fund houses have also entered into ‘standstill’ agreements with promoters ‘not to sell the shares for a certain period even when default had been triggered’. SEBI is of the view that ideally such agreements by MFs should have been questioned by the trustees and also brought to the notice of the regulator, and the public in general, but they failed in this task.

The standstill agreements came to light when a corporate house defaulted on its debt and fund houses and standstill agreements affected the payout of the fixed maturity plans (FMPs) of Kotak Mahindra AMC and HDFC AMC.

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