Sebi makes voting on resolutions floated by invested firms a must for MFs

Starting April 2021, MFs will have to vote on key resolutions such as M&A, corporate revamp, and stock option plans

The Securities and Exchange Board of India (Sebi) has made it mandatory for domestic mutual funds (MFs) to vote on resolutions floated by companies where they have investments.

Starting April 2021, MFs will compulsorily have to vote on important resolutions. These include mergers, corporate restructuring, change in capital structure, stock option plans, appointment and removal of directors and corporate responsibility issues.

From April 2022 onwards, MFs will have to vote on all resolutions.
 

As per estimates, MFs currently abstain from voting on 10 per cent resolutions. A decade ago, they used to abstain from voting on 80-90 per cent resolutions.

Experts said Sebi’s move will help improve corporate governance standards. However, MFs should not do it merely as a ‘tick-box’ exercise but engage with companies, they added.

“It is a good step. MFs can bring some degree transparency. While given the high promoter holding in Indian context, MFs may not be able to make a big difference. However, getting their voice heard will still be a big thing,” said Dhirendra Kumar, founder and CEO, of Value Research, a MF tracking firm.

In 2019, MFs had casted ‘against’ vote on less than 5 per cent of resolutions.

“Fund managers/decision makers shall submit a declaration on quarterly basis to the trustees that the votes cast by them have not been influenced by any factor other than the best interest of the unit holders. Further, trustees in their Half Yearly Trustee Report to Sebi, shall confirm the same,” said Sebi in the circular.

Sebi has said the voting has to take place at the fund house level. However, scheme level will also be allowed in certain cases.

“In case the fund manager(s) of any specific scheme has strong view against the views of fund manager(s) of the other schemes, the voting at scheme level shall be allowed subject to recording of detailed rationale for the same,” Sebi has said.

MFs own about 7.5 per cent in NSE listed companies.