Corporate Governance and

Mutual Funds
 Introduction
• Little attention has been given to Mutual
Funds
• Custodians are not having expertise and skills
for investing.
• Accountability and transparency is the main
key factor
 A case study in focus.../focus of
governance on
1. Accountability of trustees to the
beneficiaries
2. Disclosure of all relevant information to the
unit holders
3. Complete transparency in the management
of AMC
4. Adoption and adherence to the best
investment management practices
Following persons/agents expected to
bring reasonable changes in CG
• Trustees
• Board of directors of AMC
• Association of Mutual Fund in India (AMfI)
 Two things quoted by Cadbury
Committee
1. Key of good corporate governance is a well
functioning board of directors or trustees

2. Corporate governance goes beyond the

related legal statue and covers quantity,
quality and frequency of managerial
disclosures and quality of information that
the AMC shares with the trustees.
 Steps taken to improve CG
1. Role visualized for the trustee
- Trustee have been projected as first level
regulators to strengthen regulatory
compliance by mutual fund through their
own internal system.
- AMC empanels its brokers diligently.
- Trustees have to fill half yearly details and
taking investor consents to protect their
interest.
 2. Independent trustee
• Sebi Reguations 16 (5) says

• Shall not be associated with the sponsor or be

associate with them in any manner what
sover
• Concept comes from USA
• AMC as well should not be immediate family
members
 Reasonableness of Fee
• Independent trustees should pay specific
attention to reasonableness of fee paid to AMC.
• SEBI has laid down the structure of fee
(Maximum fee has been mentioned)
• They can charge “investment and advisory fee”
not management fee as mentioned in annual
report
• Fee Bargain with the AMC in the interest of
investors
 3. Independent Audit Committee
• On the recommendations of AMFI, SEBI
requires such trustees constitute an audit
committee of the trustee with an independent
trustee to be chairman.
• Committee should not perform daily
management or supervision of the funds.
• Rather to see-----the fund accounting and
reviewing internal audit system
 Special meeting
• Can adopt a practice of meeting separately
without associated/affiliated trustees.
• In such meeting critically examine the
fairness/decisions taken which reflect the
better governance like changes in the term of
contract between AMC and say broker or
custodian.
• Besides from other formal meetings
 Advisor to trustee
• As trustees can not be finacialy/expert in
their areas so has to recruit advisor.
• -can educate these trustees what information
is required from AMCs
• Advisor can not be relative
• He can be present in the meeting