To further strengthen corporate governance in mutual funds, industry body Association of Mutual Funds in India (Amfi) has asked all fund houses to disclose details of compliance department and board meeting to their trustees.
In its letter sent last week to fund houses, Amfi has asked that from hereon trustees will conduct appraisal of the compliance team. The other highlights in the letter stated that the auditor of fund houses should have independent discussions with trustees and minutes of board meeting of asset management companies (AMCs) should be given to the trustees.
A CEO of fund houses, on condition of anonymity, said, “I think this can be very significant in terms of more transparency in mutual fund industry. Earlier fund houses would conduct appraisal of compliance teams, but henceforth it will done by trustees which is a positive sign.
After this letter, the auditor will give their report independently to trustees as till now senior members of AMCs used to sit in that meeting.”
In the last few years, Amfi and market regulator Securities and Exchange Board of India (Sebi) have come out with various regulations on corporate governance for fund houses. Last year regulator had cleared new norms of corporate governance which included transparency and improvement in the quality of disclosures. Sebi had asked all the fund houses to diligently participate in corporate governance of the investee companies and exercise their voting rights in the best interest of the unit holders, voting data along with rationale supporting their decision (for, against or abstain) be disclosed on quarterly basis on their website. This is to be certified by Auditor annually and reviewed by board of AMC and Trustees.
“I think this decision would have been taken at the meeting between market regulator and Amfi which took place recently. The letter also says that, minutes of board meeting of AMCs should be given to trustees so they will get clear picture of functioning of the fund house,” said the marketing head of a mid size fund house.
Market participants also say strengthening of corporate governance and transparency is an ongoing process and more guidelines may be in the offing.
By Chirag Madia