Kaul Committee Moots Act For Mutual Funds

The P K Kaul committee set up by the Securities and Exchange Board of India to suggest manner of discharging of responsibilities by the trustees under the SEBI (Mutual Fund) Regulations, 1996 has recommended setting up of a separate act for mutual funds in India. According to the report released yesterday, the committee has recommended that UTI Act 1964 should be repealed through this common statute for mutual funds.

P K Kaul, chairman of the committee, said the mutual fund industry has reached a stage and dimensions that would justify their governance under an Act specifically designed to suit their special requirements. The report was submitted to Sebi chairman D R Mehta yesterday.

 

The committee has worked out a model management information system particularly at AMCs and trustee levels, a specific format for reporting to Sebi, compliance standards for trustees, provision for a savings clause to protect trustees through appropriate indemnification insu-rance and providing for an administrative support to the Trustees of AMC for effective discharge of responsibilities. Following are some key recommendations of the committee:

All information and documents relating to the compliance should be authenticated or adopted by the board of directors of the AMC. The committee has observed that there is an unavoidable linkage between the sponsor and the MF and though the sponsor is in a position to indirectly influence the decision making of the AMC and the Trustees, it is not liable for any such decisions.

The definition of Trustee under Regulation 2 (y) should be revised to read as the board of trustees of the trustee company or the trustee company who holds the property of the mutual fund for the benefit of the unit holders.

Trustees will be required to file details of their holdings as on April of that financial year at the time of becoming a trustee of the mutual fund and thereafter change in holdings should be reported at the end of the year. They should also report all transactions for more than Rs 1 lakh to the trust.

The frequency of meetings of the trustees or board of directors of the trust company should be increased to at least once in two months. The minimum number of trustees should be five and the maximum number shall be at the discretion of the mutual fund.

The role of independent directors is proposed to be enhanced and it should pay specific attention to investment management agreement and the compensation paid under the agreement, service contracts with affiliates, securities transactions involving affiliates, principal underwriting contracts and their renewals.

There should be a suitable savings clause in the Trust deed and a provision in the Regulation which should allow that if the trustees have acted bona-fide and in good faith, they should be deemed to have performed their duties and should be discharged from further liabilities.