Safeguarding unit holders' interest – Sebi proposes to enhance role, accountability of mutual fund trustees

safeguarding unit holders' interest - sebi proposes to enhance role, accountability of mutual fund trustees

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safeguarding unit holders’ interest – sebi proposes to enhance role, accountability of mutual fund trustees

In a bid to safeguard unit holders’ interest, capital markets regulator SEBI has proposed to increase the role and accountability of trustees of the mutual funds. The decision by the regulator comes amid the growing scale of the mutual fund industry and has also proposed a a common platform for dissemination of public announcements by mutual funds, reported PTI.

SEBI has proposed that a Unit Holder Protection Committee (UHPC) should be constituted by the board of AMC to protect the interest of the unit holders of mutual funds.

In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.

According to SEBI, the trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage, the PTI report added.

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In addition to the core areas, SEBI said that the trustees should also be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.

Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.

Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.

Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.

“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.

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Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.

The regulator has also proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.