For a fair vote

The conclusion of the electronic voting exercise initiated by Franklin Templeton India (FT ) to seek unitholders’ consent for the winding up of six debt schemes may not make any immediate difference to investors. The way forward will be decided by the Supreme Court and it may be some weeks yet, before they get to know the timing and quantum of repayments they can expect. But this exercise could well turn to be a watershed moment for the mutual fund industry. Electronic voting may well be a good avenue for hitherto voiceless investors in mutual funds to have an active say in the running and closure of their schemes. Regulations can perhaps be redrafted to usher in a unitholder consent mechanism when AMCs change fundamental attributes of schemes or decide to shutter them. SEBI also needs to lay down some basic ground rules for such exercises, something absent in the FT case.

The FT voting process flagged the need for regulatory intervention on many counts. One, for unitholders to exercise their independent judgment, it is essential that they be equipped with all the necessary facts and that the AMC or its representatives don’t exercise undue influence on their choices. In FT’s case, the notice intimating them of e-voting was short on facts and long on opinion, with the Trustees practically pressing unitholders to vote ‘yes’ for an ‘orderly winding up’. Critical information — on the way forward in the case of a ‘no’ vote and the schedule of repayments in case of a ‘yes’ — was absent in the notice. The campaigning also continued into the the voting platform with a line warning investors of distress sales if they vetoed the proposal. Instead, it would be best if mutual fund trustees, as unitholders’ fiduciaries, maintain neutrality in such voting exercises after ensuring that the AMC comes clean with all the necessary facts. Two, to ensure that the voting process is fair and equitable, it is desirable that the electronic voting exercise have an independent scrutiniser accessible to unitholders for complaints. SEBI appointed an independent observer for the FT voting exercise as an afterthought, at the Court’s behest.

In the absence of rules, FT India has gone with a one-investor-one-vote norm for its winding-up exercise. This may be democratic but is also unfair to investors who have substantial skin in the game. E-voting exercises in listed companies give shareholders voting power proportionate to the number of shares held — there’s no reason why mutual funds should be different. Overall, SEBI has played a very passive role in the FT India fiasco. It is time it upped its game.