The Securities and Exchange Board of India (SEBI) has approved ammendments providing clarity on the roles and responsibilities of trustees and the board of asset management companies of mutual funds. The board of AMCs has been made responsible for protecting unitholders' interest. The market watchdog also said that the board of trustees will be key in constituting the Unitholder Protection Committee.
Earlier in February, SEBI has released a consultation paper on the role and obligations of trustees in mutual funds. The consultation paper dealt with the role and accountability of the board of AMCs to safeguard unitholders’ interest, across all products and services.
The paper had stated that while exercising oversight over the activities of AMC, the trustees are expected to ensure that the AMCs act in a manner which is not skewed in favour of their stakeholders.
SEBI, in its consultation paper, had noted that trustees should make sure that sponsor group companies are not indulging in insider trading/front-running by taking advantage of access to MF's insider information.
The new role of trustees outlined by SEBI also includes ensuring fairness in fees and expenses charged by the AMC, to compare its performance with peers, and to ensure sponsors do not exert undue influence.
Currently, the trustees primarily rely on the AMCs to ensure compliance with the applicable regulations and confirm compliance under periodic reporting to SEBI. However, SEBI, in the new guidelines, said it is crucial that the trustees independently evaluate the extent of compliance by AMC and not merely rely on regulatory submissions.
“To have an independent review mechanism for the decisions of AMC from the perspective of the unit holders' interest, across all products and services, it is proposed to mandate that a 'Unit Holder Protection Committee' (UHPC) may be constituted by board of AMC,” SEBI said in its consultation paper.
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