Voting on corp resolutions compulsory for MFs: Sebi
- These votes will have to be disclosed to unit holders under existing regulations. Voting will be at the MF level (rather than scheme level).
The Securities and Exchange Board of India (Sebi) on Friday made voting on corporate resolutions compulsory for mutual funds (MFs).
Previously, MFs were required to disclose voting patterns, but were allowed to abstain from votes. Mutual funds will now be required to vote on a range of corporate resolutions, such as governance matters, changes to capital structures, stock option plans, appointment and removal of directors, and any other issue that may affect the interests of shareholders or unit holders.
These votes will have to be disclosed to unit holders under existing regulations. Voting will be at the MF level (rather than scheme level). Fund managers of individual schemes can vote differently from other schemes in the fund house, but must record a detailed rationale for the same.
Index funds and ETFs (exchange traded funds), which are passive in nature, will also be required to vote. The circular lists certain important matters such as related party transactions or corporate governance matters on which voting will be required from April 1. For other matters, voting will be compulsory from April 1, 2022.
“This is a good move by Sebi. I don’t see a challenge even for index funds or ETFs. Even if a mutual fund owns one share of a company, it should vote on its resolutions. Otherwise, it has no business owning those shares,” said Shriram Subramanian, founder and managing director, InGovern Research. “MFs have to vote objectively even when the AMCs have stake in associate companies,” he added.
Amit Tandon, founder and managing director, Institutional Investor Advisory Services said the change will be minor. MFs and pension funds as a category abstained on only 11% of resolutions in FY20, he said.
“This presents a problem for passive funds which do not have research analysts tracking each stock. Sebi should have also laid down a threshold of shares above which voting is compulsory. This will raise compliance costs and burden. Attrition in compliance teams has spiked,” said the compliance head of a mid sized mutual fund on condition of anonymity.