MFs would be required to disclose certain additional details about their assets under management (AUM) as well as explain rationale behind exercising their voting rights in companies from 1st April
Market regulator Securities and Exchange Board of India (SEBI) has asked mutual fund (MF) houses to make monthly disclosures about assets managed by them and explain the rationale behind exercising their voting rights in companies. This is the part of a long-term policy issued by SEBI for mutual fund and would come into force from 1 April 2014.
The long-term policy for the over Rs9 lakh-crore MFs industry aims to make it an attractive investment proposition for retail investors and also provides for bolstering distribution channels. It has suggested selling of mutual funds through public sector banks and online to increase their penetration.
In a circular, SEBI said MFs would be required to disclose certain additional details about their assets under management (AUM) on a “monthly basis”. Besides, the data has to be put on a consolidated basis on the website of Association of Mutual Funds of India (AMFI) within seven working days of the month.
Also, MFs should disclose the rationale while exercising their voting rights in investee companies. “Asset management companies (AMCs) shall be required to record and disclose specific rationale supporting their voting decision (for, against or abstain) with respect to each vote proposal,” according to the SEBI circular.
Some of the important guidelines from SEBI are listed below:
Disclosure of AUM
(a) Disclosure of assets under management (AUM) on a monthly basis.
(b) The disclosures will include contribution of AUM from different category of schemes; top tier and other cities; sponsors and associates; entities other than sponsor and associates; investors type (retail, corporate, etc) in different scheme type (equity, debt, ETF, etc.); AUM garnered through sponsor group/ non-sponsor group distributors; and State-wise/Union territory-wise contribution to AUM.
(c) This information will be disclosed on the respective AMC’s website and on AMFI website.
Disclosure of Voting Exercise
(a) AMCs will record and disclose specific rationale supporting their voting decision (for, against or abstain) with respect to each vote proposal.
(b) AMCs will publish summary of votes cast across all its investee companies and along-with break-up of for, against or abstained votes.
(c) AMCs will disclose voting exercises on their website on a quarterly basis, within 10 working days from the end of the quarter and also in their annual report.
(d) AMCs will obtain Auditor's certification on voting reports being disclosed by them which will be submitted to trustees and also disclosed in the annual report & website.
(e) Board of AMCs and Trustees will review and ensure that AMCs have voted on important proposals and the rationale recorded for vote decision is prudent and adequate.
Other Disclosures
(a) Mutual Funds will make available printed literature on mutual funds in regional languages.
(b) Mutual Funds will introduce Investor awareness campaign in regional languages both in print and electronic media.
(c) AMCs will develop a system for active support to PSU banks to distribute Mutual Fund products through them.
(d) Mutual funds will also provide an online investment facility on their websites
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Disclosure of basis of payment of commissions (money life pointed out repeatedly about the huge upfront commissions that are being paid to big distributors like banks and National distributors) would have been another important step in safeguarding the interest of small distributors / IFAs(consequently would have safeguarded the interest of retail or small investors whom the IFAs mainly serve). Transparency in payment of commissions would have certainly helped increase the penetration of Mutual Funds.
& more importantly WHY?
Like everybody else IFAs must fend for themselves rather than waiting for a non-existent saviour.
Rather than risking their survival on trail commission, It is time for IFAs to become serious investors first & achieve financial freedom.