MF update: SEBI asks independent trustees to ensure high corporate governance.

Market regulator SEBI called up a meeting of mutual fund trustees on Wednesday. The meeting hauled up the independent trustees and ordered them to ensure high corporate governance standards. Independent trustees are considered to be the first level regulators for ensuring the corporate governance.

As per the statement posted on SEBI’s website, the mutual fund industry has witnessed record growth in the recent times, so it is essential to ensure good governance practices. For this, the role of the trustees becomes very crucial so it was very necessary to get in touch with them and sensitize them on significant role played by them in the industry.

This meeting has been called after the regulator’s July 9 letter to the Association of Mutual Funds of India. In which the SEBI has asked to ensure corrective measures against over 24 severe violations by mutual funds found during inspections.

SEBI’s letter says that after an inspection on large MFs between April 2014 and March 2016. It was found that MFs were not adhering with guidelines on the parking of funds in short-term deposits of scheduled commercial banks, and even not taking prior approval of trustees before taking various decisions. Also, it was found that the MF’s are not collecting proper KYC documents from investors, not fairly valuing unlisted shares as per policy. This is one of the severe cases of misconduct.

Going ahead, SEBI also mentioned that the MFs were also denying investors the correct NAV as per the prescribed policy. MFs have also failed in documenting the investment transactions, including inter-scheme transfers. On MF expenses, the regulator found that inappropriate expenses were shown for investor education awareness and advertisement expenses. The regulator also found issues in reporting of the other expenses and their filings with them.

MFs were also found borrowing for purposes other than those allowed under MF regulations by the regulator and periodical review of schemes’ performance was not done properly with all these allegations, the market regulator has now asked the independent trustees to have a high corporate governance. With this move, once more SEBI has tried to restore the faith of investors that it is doing enough to protect investors' interest.