Trustees could be given authority to pull up fund managers on performance and other important investment decisions. Amfi, which is currently seeking suggestions from mutual funds, is expected to forward those recommendations to the market regulator, Securities & Exchange Board of India (Sebi).
A official from the mutual fund industry said, The report of the committee largely covers all the major reforms for trustees. This will provide more power and greater accountability to them. Besides, trustees might be asked to be more involved in the important day-to-day functioning of mutual funds.
The role of trustees in a way is similar to that of independent directors on company boards. Sebi regulations require that at least two thirds of directors of the trustee company or the board of trustees must be independent i.e. they should not be associated with sponsors. Currently, trustees of mutual funds meet once in every two months and get paid fees, which are typically 0.01% of assets.
Indian mutual funds follow a three-tier legal structure comprising sponsor, trustee and the asset management company. Currently, a mutual fund is set up in the form of a trust under the Indian Trust Act.
According to an earlier Asian Development Bank report, the trust structure has posed certain practical difficulties, including the issue of individual versus collective liability of trustees, for mutual funds. It has deterred experienced persons from serving as trustees, said the report.
The provisions of the Indian Trust Act prohibit limiting or extinguishing obligations and liabilities of trustees or indemnifying them for losses or damages.