Stewardship code for MFs & AIFs

Market regulator-Securities and Exchange Board of India (SEBI) in December 2019 mandated ‘stewardship code’ for mutual funds (MFs) and alternative investment funds (AIFs). SEBI asked all the asset management companies (AMCs) to opt for it before April 1, 2020. SBI Mutual Fund recently opted for the same and became the first fund house to adopt stewardship code. Britain was the first to roll out stewardship obligations in the year 2010 itself, followed by Japan and Malaysia.

What is stewardship code?

Stewardship code, a framework that is principle-based, helps institutional investors like MFs and AIFs to fulfil their responsibilities by protecting interest and enhancing value of their clients. This code also helps the institutional investors to enhance corporate governance of investee companies. Stewardship responsibilities include monitoring and actively engaging with investee companies on various matters including performance such as operational, financial, strategy, corporate governance (including board structure, remuneration, etc.), material environmental, social and governance (ESG) opportunities or risks, capital structure, etc.

Principles laid down by SEBI

SEBI has laid down certain principles and also provided their guidance with respect to stewardship code. We have listed them as below:

1. Institutional  Investors  should  formulate  a  comprehensive  policy on the discharge of their stewardship responsibilities, publicly disclose it, review and update it periodically.

2. They should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities as well as publicly disclose it.

3. Institutional investors should monitor their investee companies.

4. They should have a clear policy on intervention in their investee companies. Institutional  investors  should  also  have  a  clear  policy  for collaboration with other institutional investors wherever required, to preserve the interests of the ultimate investors, which should be disclosed.

5. Institutional investors should have a clear policy on voting and disclosure of voting activity.

6. They should report periodically on their stewardship activities.