Trustees have an onerous task of protecting the interests of investors in mutual funds and for that the regulator wants them to be actively involved in fund management, finds Team Cafemutual. Read to understand what the trustees are supposed to do.
Mumbai: Securities and Exchange Board of India (SEBI) wants trustees and independent directors to take a more active role to ensure investor protection and trustees to be more accountable for fund performance.
Mutual Fund Industry Structure
Mutual funds (MFs) have a three-tier structure-sponsor, trustee and AMC.
Mutual funds are constituted as Trusts. The mutual fund trust is created by one or more Sponsors, who are the main people behind the mutual fund operation. As a safeguard SEBI does not allow Sponsor Company to directly manage investor money. Besides, the Sponsor Company has its own business to run and doesn’t have time to manage investor money on a day-to-day basis. The Sponsor Company appoints the AMC to manage the money and a group of people called trustees to monitor the AMC and take care of investor money.
Every trust has beneficiaries. The beneficiaries, in the case of a mutual fund trust, are the investors who invest in various schemes of the mutual fund. Here’s where the importance of trustees comes in. The trustees ensure that investors can withdraw at any point of time and nobody else, including the sponsors, has any right to the corpus.
Powers of Trustees
SEBI’s MF regulations ensure that trustees have enough powers to supervise the AMC. The board of trustees of a fund is entrusted with the task of monitoring fund performance and helping redress investor grievances.
Two-thirds of the directors of an MF’s board of trustees must be ‘independent’, that is, they should not be associated with the sponsors of the fund; also, 50% of the directors of the AMC must be independent.
The existing norms even empower the board of trustees to sack the AMC’s board of directors for not safeguarding investor interests or for non-adherence to SEBI norms. But till date there has been no known instance of a fund house being reprimanded for poor performance.
To empower them in carrying out this role more effectively, the market regulator aims to make trustees and independent directors of asset management companies (AMCs) familiar with the best practices.
To achieve this, SEBI plans to conduct workshops for trustees and independent directors of AMCs, through National Institute of Securities Markets (NISM).
The first workshop planned for September 15 is to cover topics such as discharging fiduciary duties, insights into debt and money markets and reviewing fund performance beyond returns.
NISM will run at least three workshops every year which will focus on technical subjects and the regulatory perspective.
