The Securities and Exchange Board of India carved out certain core responsibilities for trustees of mutual funds and boards of directors of asset management companies on Friday.
This is pursuant to an amendment made to the SEBI (Mutual Funds) Regulations, where the board decided to specify some core responsibilities for mutual fund trustees.
Trustees are entities that hold the property of the mutual fund in trust for the benefit of the unitholders. Their primary role is to ensure that the AMCs appointed by them act in the best interests of the unitholders. Although the mutual fund regulations already provide for the responsibilities of a trustee, the regulator has now provided some key areas that need focus.
The core responsibilities of a mutual fund trustee would include:
Ensuring the fairness of the fees and expenses charged by the AMCs.
Reviewing the performance of its scheme against peers.
Putting in sufficient mechanisms to prevent misselling
Ensuring that there is no undue influence in the operations by sponsors, associates, or other stakeholders of the AMC.
Ensuring that there is no undue or unfair advantage given to any associate entities.
Addressing conflicts of interest between shareholders, stakeholders, associates of the AMC, and unitholders
Ensuring an adequate system to prevent market misconduct by employees and connected entities of the AMC.
Trustees are also bound to prevent fraudulent activities, including front-running by employees. They are bound to independently evaluate the extent of compliance by the AMC and not just rely on the statements made by the AMC.
They should also make sure that the AMC has set up a suitable mechanism to produce system-based information for assessment and efficient due diligence.
For responsibilities other than core ones, trustees are allowed to seek the assistance of professional firms, such as audit firms, legal firms, and merchant banks. This may include overseeing the management of AMCs, acting as a custodian of assets on behalf of unitholders, or periodically reviewing the activities of the AMCs.
Responsibilities are also laid down for the unitholder protection committee as mandated by the Mutual Fund Regulations. The committee will be responsible for the protection of the unitholders.
It will ensure the adoption of sound and healthy market practises in terms of investments, sales, marketing, and others. It will also be responsible for ensuring compliance with various laws and regulations around mutual funds.
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