Market regulator SEBI has suggested a few changes on the role of mutual fund (MF) trustees and allowed them to outsource a few of their responsibility for focusing on their fiduciary responsibility.

SEBI, in a consultation paper, said it desires to have a corporate form for trustees in view of perpetuity and financial independence. In this regard, it has proposed one year for existing trustees with board of trustee structure to convert into a trustee company. Currently, two structures for trustees are permitted — corporate structure and board of trustees structure.

SEBI seeks investors’ response on its proposals by February 24.

‘Focus on core issue’

To ensure that trustees devote time and attention to their core responsibilities, they are allowed to rely on professional firms such as audit and legal firms besides merchant bankers for carrying out due diligence on their behalf.

The trustees are expected to ensure that the AMCs act in a manner which is not skewed in favour of AMC’s stakeholders. From the data available, it is observed that a significant number of folios either do not contain bank account details or are incomplete. Such folios are exposed to risk related to fraudulent transactions, said SEBI.

Therefore, trustees should periodically review the steps taken by AMCs for the folios which do not contain all KYC attributes and take remedial steps necessary for updating them especially pertaining to bank details.

System-level checks

Further, the trustees shall also be responsible for taking steps to ensure that there are system-level checks in place to prevent fraudulent transactions and such checks are reviewed periodically, it said.

SEBI proposed to amend norms to include a clause that cast a similar obligation on the board of AMC which is currently cast on the trustees.

Ramesh P, Managing Director, Rasi Enterprises, an MF distributor, said while SEBI wants to provide sweeping powers to the trustees for protecting investor interest, it should also take some responsibility for monitoring trustees. “It is really surprising how one can operate a folio without proper bank details. All these measures will increase MF cost and impact their profitability,” he added.

Common platform

The market regulator has proposed a common platform for MFs to post notices and addenda. Having a common platform would be useful and would serve as a one-stop place for such information for investors who invest with multiple MFs.

SEBI also plans to increase the minimum number of trustees from the current four, considering the increasing scale of the MF industry and enhanced role of trustees. It has also proposed that the chairperson of the trustee company may also be an independent director.

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