Executive Summary:
This circular from the Securities and Exchange Board of India (SEBI) outlines additional guidelines for votes cast by Mutual Funds (MFs) and Asset Management Companies (AMCs) to improve transparency and encourage diligent exercise of voting rights in the best interest of unitholders. It mandates compulsory voting on specific resolutions and eventually on all resolutions. Most provisions are effective from April 01, 2021, except for compulsory voting on all remaining resolutions, which takes effect from April 01, 2022.
Key Points / Main Content:
Compulsory Voting:
* Mutual Funds, including passive investment schemes, must compulsorily cast votes on:
* Corporate governance matters
* Changes to capital structure
* Stock option plans and management compensation
* Social and corporate responsibility issues
* Appointment and Removal of Directors
* Any issue that may affect the interest of the shareholders
* Related party transactions of investee companies (excluding own group companies) as defined in SEBI LODR Regulations, 2015.
* From April 01, 2022, Mutual Funds must compulsorily cast votes on all remaining resolutions not covered above.
* Mutual Funds having no economic interest on the day of voting may be exempted from compulsory casting of votes.
Voting Implementation:
* Vote shall be cast at Mutual Fund Level
* Voting at scheme level is allowed if Fund Managers of any specific scheme has strong view against the views of Fund Managers of the other schemes, subject to recording of detailed rationale.
Declaration and Confirmation:
* Fund Managers/Decision makers must submit a quarterly declaration to the Trustees affirming that their votes were not influenced by factors other than the best interest of unitholders.
* Trustees must confirm the same in their Half Yearly Trustee Report to SEBI.
Effective Dates:
* The circular is effective from April 01, 2021, except for the compulsory voting on all remaining resolutions, which is effective from April 01, 2022.
Impact Analysis:
Mutual Funds (MFs) / Asset Management Companies (AMCs):
* Impact: Stricter requirements for exercising voting rights on invested companies' resolutions, increased transparency, and potential changes to voting processes.
* Action Required: Implement systems to ensure compulsory voting on specified resolutions by April 01, 2021, and on all resolutions by April 01, 2022. Establish processes for recording rationales for scheme-level voting and for quarterly declarations by Fund Managers.
Trustee Companies / Board of Trustees of Mutual Funds:
* Impact: Increased oversight responsibility to ensure Fund Managers are voting in the best interest of unitholders.
* Action Required: Implement a process to receive and review quarterly declarations from Fund Managers and include confirmation of the same in the Half Yearly Trustee Report to SEBI.
Unitholders:
* Impact: Increased protection of their interests through more diligent and transparent voting practices by Mutual Funds.
* Action Required: No direct action required, but benefit from enhanced governance and transparency.
SEBI:
* Impact: Regulatory oversight of Mutual Fund voting practices.
* Action Required: Supervise and enforce compliance with the new guidelines.
Key Entities Referenced
Securities and Exchange Board of India: The regulatory body issuing the circular and responsible for regulating the securities market in India.
Mutual Funds: Collective investment schemes that pool money from many investors to purchase securities.
Asset Management Companies: Companies that manage investment funds on behalf of clients, including mutual funds.
Association of Mutual Funds in India: An association of all the AMCs in India.
SEBI Listing Obligation and Disclosure Requirements Regulations, 2015: Regulations pertaining to the listing obligations and disclosure requirements for companies listed on Indian stock exchanges.
SEBI Mutual Funds Regulations, 1996: Regulations governing the operation and management of mutual funds in India.
Securities and Exchange Board of India Act, 1992: The Act of the Parliament of India which gave SEBI statutory powers.
MFAC: Refers to Mutual Fund Advisory Committee, based on whose deliberations the additional guidelines have been prescribed
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Securities and Exchange Board of India
CIRCULAR
SEBI/HO/IMD/DF4/CIR/P/2021/29 March 05, 2021
All Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)
Sir/ Madam,
Sub: Guidelines for votes cast by Mutual Funds
SEBI, vide Circular no. SEBI/IMD/CIRNo18/198647/2010 dated March 15, 2010,
CIR/IMD/DF/05/2014 dated March 24, 2014, SEBI/HO/IMD/DF2/CIR/P/2016/68 dated August
10, 2016 and CIR/CFD/CMD1/168/2019 dated December 24, 2019, has prescribed guidelines
for votes cast by Mutual Funds. In order to further improve transparency as well as encourage
Mutual Funds/AMCs to diligently exercise their voting rights in best interest of the unitholders
and based on the deliberations in MFAC, following additional guidelines have been prescribed:
1. Mutual Funds including their passive investment schemes like Index Funds, Exchange
Traded Funds etc. shall be required to cast votes compulsorily in respect of the following
resolutions:
i. Matters mentioned at Para no.4(iii) of SEBI Circular SEBI/IMD/CIR No 18/ 198647 /2010
dated March 15, 2010 i.e.
a) Corporate governance matters, including changes in the state of incorporation.
merger and other corporate restructuring, and anti-takeover provisions.
b) Changes to capital structure, including increases and decreases of capital and
preferred stock issuances.
c) Stock option plans and other management compensation issues.
d) Social and corporate responsibility issues.
e) Appointment and Removal of Directors.
f) Any other issue that may affect the interest of the shareholders in general and interest
of the unit-holders in particular.
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Securities and Exchange Board of India
ii. Related party transactions of the investee companies (excluding own group companies).
For this purpose, “Related Party Transactions” shall have same meaning as assigned to
them in clause (zc) of Sub-Regulation (1) of Regulation (2) of the SEBI (Listing Obligation
and Disclosure Requirements) Regulations, 2015.
2. Further, for all remaining resolutions which are not covered at Para 1 of this circular, Mutual
Funds shall also compulsorily be required to cast their votes with effect from April 01, 2022.
3. In case of the Mutual Funds having no economic interest on the day of voting, it may be
exempted from compulsorily casting of votes.
4. The vote shall be cast at Mutual Fund Level. However, in case Fund Manager/(s) of any
specific scheme has strong view against the views of Fund Manager/(s) of the other
schemes, the voting at scheme level shall be allowed subject to recording of detailed
rationale for the same.
5. Fund Managers/Decision makers shall submit a declaration on quarterly basis to the
Trustees that the votes cast by them have not been influenced by any factor other than the
best interest of the unit holders. Further, Trustees in their Half Yearly Trustee Report to
SEBI, shall confirm the same.
6. This circular shall be applicable with effect from April 01, 2021 except Para 2 which will be
applicable from the mentioned date.
7. This circular is issued in exercise of powers conferred under Section 11 (1) of the Securities
and Exchange Board of India Act, 1992, read with the provisions of Regulation 77 of SEBI
(Mutual Funds) Regulations, 1996, to protect the interests of investors in securities and to
promote the development of, and to regulate the securities market.
Yours faithfully,
Lamber Singh
Deputy General Manager
Email: lambers@sebi.gov.in
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