Hello Readers! 

The SEBI (Securities Exchange Board Of India) on 5^th March 2021, announced that now it will be mandatory for mutual funds to vote on all company resolutions.

With the new provision, the regulator that is SEBI wants all schemes to vote on the resolutions, even if the company’s equity shares are held as passive investments through an index fund or exchange-traded fund (ETF).

It has stated that the fund houses can only stay away from voting only in case if they don’t have any equity investment in the company on the day of voting. The new provision will be effective from 1^st April 2021.

What Was The Provision Earlier?

Well, before this provision, voting was limited to the fund house-level, but now the votes can also be cast at the scheme-level if the fund manager of the scheme has a different view than the fund house.

Voting Conditions After The New Provision!

After the new provision, mutual funds now will have to make sure that they cast their votes on company’s resolution related to corporate governance matters, changes in capital structure, stock option plans, and other management compensation issues, social and corporate responsibility, appointment, and removal of directors and all other issues that may affect the interest of the shareholder and the unitholders holding units in that concerned mutual fund scheme.

Mutual fund schemes will also have to cast their vote on matters of transactions that are related to investee companies with parent company subsidiaries or another company from the same business group.

SEBI in its circulation stated that now fund managers will have to submit a declaration that declares that the votes cast have not been influenced by any factor other than the interest of the unitholders. This declaration must have to be submitted to the fund house’s trustees every quarter. The trustees in return will be required to confirm this in their half-yearly report to SEBI.

Mutual fund houses will be required to make voting public via their websites and also in their annual reports.

No Clarity On Abstain Vote!

Well, in the new provision there is no clarity regarding whether the mutual fund can continue to abstain from voting. However, industry sources suggest that mutual funds may still be able to cast an ‘abstain’ vote, as the new regulations don’t state anything against it.

The financial experts however have their own theories and suggestion regarding the abstain votes. Managing director of InGovern, Shriram Subramanian, said that mutual funds do not abstain from voting whether it is in the favor or not as it is a disservice to unitholders, who hold investments in the company through the mutual fund.

While one another experts that many fund houses may not have enough information about company resolution, and abstaining might be the appropriate action for them.

Well, here it is interesting to say that the number or ratio of abstain votes has come down over years.

Keep reading for more updates on Mutual Fund Investment!!

For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).