SEBI Enhances Accountability of Mutual Fund Trustees
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SEBI has further said that a unit holder protection committee (UHPC) by the board of an (Asset Management Companies) AMC would be constituted. This is part of SEBI attempt to have an independent review mechanism for the decisions of AMC from the perspective of the unit holder’s interest across all products and services. This framework will come into force from 01 January 2024.
The "core" responsibilities of the Trustees of a mutual fund, wherein they will have to ensure that the AMCs have adequate systems to prevent mis-selling to increase their assets base. The trustees need to ensure that AMC has a system to prevent market abuse by its employees and connected entities.
The Trustees will also be responsible for putting in place system-level checks at AMC end to prevent fraudulent transactions including front running by employees and mis-selling by distributors. Besides, they will have to ensure the fairness of the fees and expenses charged by the AMCs, review the performance of AMC in its schemes vis-a-vis the performance of peers or the appropriate benchmarks.
They would also be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
To focus on the core responsibilities, the Trustees can rely on professional firms such as audit firms, legal firms, merchant bankers, etc for carrying out due diligence on their behalf. In case a company is appointed as the Trustee of a mutual fund, the chairperson of the board of directors of that Trustee company would be an independent director.
The Trustee company, which has already been appointed as the Trustee of a mutual fund, will have to ensure compliance with this rule within six months from the date of this circular coming into force.
The board of directors of the AMCs and the board of directors of the Trustee company will meet at least once a year to discuss the issues concerning the mutual fund, and future course of action, wherever required
Under the rules, Trustees hold the property of the mutual fund in trust for the benefit of the unit holders. The Trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilized under various schemes, by the investment objectives.
SEBI said that UHPC will be responsible for the protection of the interest of unit holders of mutual fund schemes vis-a-vis all products and services provided by the AMC
The committee will ensure adoption of sound and healthy market practices in terms of investments, sales, marketing, advertisement, management of conflict of interests, redressal of unit holders' grievances, and investor awareness.
UHPC has been mandated to review the various compliance issues relating to the protection of the interests of the unit holders and keep the unit holders well informed of and educated about mutual fund products, investor charter, and complaint handling procedures.
It would report its findings to the board of directors of AMC along with recommendations for action.
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