Sebi puts in place stewardship code for mutual funds, AIFs

Mumbai: The Securities and Exchange Board of India (Sebi) has asked all mutual funds and alternative investment funds (AIFs) to monitor their investments in listed companies.

The regulator on Tuesday mandated these institutional investors to have a comprehensive policy on discharge of their stewardship responsibility and on how to manage conflict of interest in fulfilling their responsibility.

Sebi has proposed five principles that fund houses have to follow under the proposed stewardship code including a policy on intervention in their investee companies by collaborating with other institutional investors where required to protect the interest of ultimate investors.

Fund houses and AIFs should also have a clear policy on voting and disclosure of voting activity.

In 2010, Sebi had asked all mutual funds to disclose their actual voting on different resolutions of investee companies.

“The importance of institutional investors in capital market across the world is increasing, they are expected to shoulder greater responsibility towards their clients / beneficiaries by enhancing monitoring and engagement with their investee companies,” Sebi said in a circular. “Such activities are commonly referred to as ‘Stewardship Responsibilities’ of the institutional investors and are intended to protect their clients’ wealth. Such increased engagement is also seen as an important step towards improved corporate governance in the investee companies and gives a greater fillip to the protection of the interest of investors in such companies.”

The regulator said procedures should be put in place in case conflict of interest situations arise including blanket ban on investments in certain cases, having a ‘conflict of interest’ committee to which such matters may be referred to, segregation of voting function and client relations and sales function.

While monitoring their investee companies, investors should also keep in mind regulations on insider trading while seeking information, Sebi said.

The regulator said circumstances for intervention may include poor financial performance of the company, corporate governance-related practices, remuneration, strategy, leadership issues and litigation, among others.