Trustee of one MF can’t be on board of another

NEW DELHI: One man one show. For the trustees of mutual fund, the message of Sebi is clear. The market regulator is planning to bar trustees of one mutual fund to be on board of trustees or asset management company of another mutual fund.

The proposal, which has the support of finance ministry, has already been discussed with the association of mutual funds of India. Sources said such a bar was needed as the job of a trustee is very demanding in wake of the quantum of funds he handled. Also, there could be conflict of interest when a trustee of one mutual fund is on board of AMC or trustees of another fund, since they are competing for same returns, sources told ET. In fact, this is the practice followed in developed countries.

Earlier, there were just 12-13 mutual funds with limited assets. But with the stock market size burgeoning, the MF industry has also grown. The domestic fund industry held assets under management to the tune of Rs 2,90,000 crore, as on September 30,’06.

This was a growth of nearly 46% in the last 12 months. A mutual fund is set up in form of a trust, which has a sponsor, trustees, asset management company and custodian. The trust is established by a sponsor, or more than one sponsor, who is like promoter of a company. Trustees, on the board of trust of the fund, then hold its property for the benefit of the unitholders, which are the investors.

The trustees have the power of superintendence and direction over AMC. They monitor the performance and compliance of Sebi regulations by the mutual fund. The AMC manages the funds by making investments in various types of securities.

According to existing Sebi regulations, at least two-thirds of the trustees, on the board of trustees, must be independent. This means that they should not be associated with the sponsors. The new proposal, which was discussed at the Sebi board meeting last week, will ensure that the trustees will be able to be associated with only one mutual fund. However, the proposal will be put for public comment before implementation.