The move has not found many takers as a single entity acting as a trustee of all AMCs may not take an active interest in the operations of a fund
Mumbai: SEBI’s 14 member MF advisory committee in its recent meeting considered the idea of having an independent company acting as a trustee overseeing the functioning all 44 AMCs. But the idea has not found many takers as the role of an independent trustee may get diluted if they have to oversee all AMCs.
Currently, sponsors of mutual fund appoint their own trustees who have a final say on the decisions taken by a fund house.
SEBI has been nudging trustees and independent directors to play an active role in steering fund houses. Not all trustees are said to have sound understanding of the industry. Last year, SEBI had conducted two knowledge workshops for trustees to equip them with various functions of mutual fund. Fund officials say that trustees only meet once in two months and thus don’t play an active role.
What role do trustees play?
Mutual funds operate on a three tier structure – AMC, trustee and sponsor. MF trustees act as first level regulators of an AMC. The sponsor may appoint individual trustees or a trustee company. Individuals appointed as trustees are known as board of trustees. A trustee company functions through its board of directors. The sponsor or trustees appoint an AMC which is entrusted with managing money by charging an annual fee.
Trustees have a fiduciary responsibility of safeguarding investor’s money. Trustees also have the authority to wind up an AMC. However this has not happened in the mutual fund industry so far.
The operations of a fund are laid down in a trust deed stipulated by SEBI. The AMC’s responsibilities are set by trustees through an investment management agreement. Trustees also appoint custodians with whom the assets (real estate, gold, and securities) are kept. Prior approval of SEBI is required to appoint trustees. The expense incurred on remunerating trustee is borne by the scheme. Every equity scheme charges 0.05% as trustee fee.
A trustee company needs to have at least four directors on the board and two-thirds of the trustees/directors of the trustee company have to be independent trustees who are not associated with the sponsor. All top appointments, expenses and product launches need trustees’ approval. AMCs send periodic reports relating to its performance and other functions to the trustees.
