The Association of Mutual Funds in India (Amfi) has suggested that member asset management companies (AMCs) should disclose transactions with affiliated schemes, companies, persons or any significant unitholder.
The association, in its draft code of conduct, has said that AMCs should also avoid excessive holding of units in a scheme by a few persons or entities.
The industry image had taken a beating in the past due to alleged hand-in-glove deals between AMCs, sponsor companies and 'friendly' corporates. This is the first time a concerted effort is being made by the association to curb this practice.
"No AMC may engage in any direct transaction on behalf of any scheme managed by it within the established parameters and mutual fund regulations with any officer, director, partner or employee of the AMC or the trustee company," the code states.
A committee, headed by A P Pradhan, chief executive of GIC AMC, was formed by Amfi to finalise the code of conduct for its members. The panel was assisted by Price Waterhouse in formulating the code.
Integrity of member AMCs has been given the top priority in the code. The code has stated that schemes shall not be organised, operated, managed or their portfolios of securities selected in the interest of sponsors, directors or members, members of board of trustees or directors of the trustee company, brokers, affiliated persons of any of the above, or any special class of unitholders.
Member AMCs should exercise due diligence, render high standards of service, and exercise independent professional judgement, the draft code said. The code has also stated that member AMCs should inform unitholders their investment policies and objectives, financial position and general affairs of the scheme.
"Members shall disclose to investors, possible sources of conflict of duties and interests. They shall disclose to unithoders and Amfi, for each scheme, its investment pattern, its ratios of expenses to total income and to total assets and of portfolio turnover, on a half-yearly basis. Members shall endeavour to disclose their portfolios whenever and where possible," stated the code.
For transactions with affiliated schemes, companies, persons or any significant unitholder, AMCs should submit a detailed description of the transaction, justifying the transaction and its fairness to the scheme at the next meeting of the board of trustees and also disclose it to the unitholders a brief description of the transaction.
All transactions in securities shall be disclosed to the compliance officer concerned of the AMC on a periodic standard basis and be subsequently reported to the board of trustees.
On safeguarding the interests of the unitholders, the code has stated that member AMCs should provide investors with "true and adequate information without making any misguiding or exaggerated claims to investors either about their qualifications or their capability to render certain services or their achievement in regard to services rendered to other clients, and are made aware of attendant risks before any investment decision is made by them."
The code has specified that AMCs should guarantee returns only in cases where the offer document of the scheme is approved by Sebi. Besides, the AMC should ensure that adequate resources will be made available and maintained, the draft code said.
