SEBI Carves Out Core Roles and Responsibilities for Trustees of Mutual Funds

Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/117, Dated: 07.07.2023

The SEBI has carved out certain core roles and responsibilities for trustees and BODs of asset management companies (AMCs) of Mutual Funds. This is pursuant to an amendment made to the SEBI (MF) Regulations, where the board decides to specify some core responsibilities for mutual fund trustees.

Trustees are entities that hold the property of the mutual fund in trust for the benefit of the unitholders. Their primary role is to ensure that the AMCs appointed by them act in the best interests of the unitholders. Although mutual fund regulations already provide for the responsibilities of a trustee, the SEBI has now provided some key areas that need focus.

The core responsibilities of a mutual fund trustee would include –

(a) Ensuring the fairness of the fees and expenses charged by the AMCs

(b) Reviewing the performance of its scheme against peers.

(c) Putting adequate systems to prevent mis-selling

(d) Ensuring that there is no undue influence in the operations by sponsors, associates or other stakeholders of the AMC.

(e) Ensuring that there is no undue or unfair advantage given to any associate entities.

(f) Addressing conflicts of interest between shareholders, stakeholders, associates of the AMC and unitholders.

(g) Ensuring an adequate system to prevent market misconduct by employees and connected entities of the AMC.

Further, for responsibilities other than core ones, trustees are allowed to seek the assistance of professional firms, such as audit firms, legal firms and merchant banks. This may include overseeing the management of AMCs, acting as a custodian of assets on behalf of unitholders or periodically reviewing the activities of the AMCs.

Also, responsibilities are laid down for the unitholder protection committee as mandated by the Mutual Fund Regulations. The committee will be responsible for the protection of the unitholders. It will ensure the adoption of sound and healthy market practices in terms of investments, sales, marketing, and others. The circular shall come into force w.e.f 01.01.2024.

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