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Like the record inflows they are receiving, SEBI wants domestic mutual funds to take their governance standards a notch higher too. The regulator has prescribed that directors and auditors of mutual fund companies should rotate every 10 years.
As of now there is no such requirement for MFs even while listed companies have to take such measures as part of corporate governance. SEBI said independent directors or independent trustees of MFs can now hold only two consecutive five-year terms.
Individuals who have held office for less than nine years as of today may continue for the residual period of service. But hose who have held office for over nine years as of today may continue for a maximum of one year, said the regulator.
An independent director will be eligible for reappointment after a cooling-off period of three years. During the three years, the director cannot be associated with the asset management company (AMC), its subsidiary or parent company in any manner.
Auditor rotation policyAMCs should also adopt an auditor rotation policy. No auditor will be allowed to audit an AMC for more than two consecutive five-year terms. The auditor will be allowed reappointment after a cooling-off period of five years. During the cooling-off period, the new auditors will need to be completely independent of the previous auditor and have no association in terms of common brand name, control, etc.
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