Sebi rolls out stewardship code for all MFs, AIFs

The Securities and Exchange Board of India (Sebi) on Tuesday announced Stewardship Code for all mutual funds and all categories of alternative investment funds (AIFs).

The code has laid down six principles which institutional investors will have to follow for their investments in listed securities.

Under the Stewardship Code, the market regulator has asked fund houses and AIFs to formulate a comprehensive policy on the discharge of their stewardship responsibilities and how institutional investors should monitor their investments in listed companies. Sebi also said that institutional investors should have a clear policy on voting and disclosure of voting activity and they should report periodically on their stewardship activities.

The six principles laid down by Sebi are intended to strengthen the role of fund houses as stewards on behalf of the investors. Under stewardship responsibilities, institutional investors are expected to have greater responsibility towards their beneficiaries by enhancing monitoring and engagement with their investee companies. “Such increased engagement is also seen as an important step towards improved corporate governance in the investee companies and gives a greater fillip to the protection of the interest of investors in such companies,” said Sebi in its circular.

Sebi has already implemented principles on voting for Mutual Funds through which prescribed detailed mandatory requirements for mutual funds in India to disclose their voting policies and actual voting by Mutual funds on different resolutions of investee companies. The Stewardship Code shall come into effect from the Financial Year beginning April 1, 2020.

The market regulator said that every institutional investor should formulate a comprehensive policy on how it intends to fulfill the aforesaid stewardship responsibilities and disclose it publicly and have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it. “The policy shall be intended to ensure that the interest of the beneficiary is placed before the interest of the entity. The policy should also address how matters are handled when the interests of clients or beneficiaries diverge from each other,” said Sebi.

Mutual funds and AIFs should also have a clear policy for collaboration with other institutional investors where required, to preserve the interests of the ultimate investors, which should be disclosed to the investors. Sebi also said that to improve governance and protect and enhance wealth of investors it is critical that the institutional investors take their own voting decisions in the investee company after in-depth analysis rather than blindly supporting the management decisions.