Sebi makes voting compulsory for MFS

The Securities and Exchange Board of India (Sebi) has made it mandatory for domestic MFS to vote on resolutions floated by companies in which they have investments. The diktat by the regulator takes effect from April this year.

The directive pertains to mergers, corporate restructuring, change in capital structure, stock option plans, appointment and removal of directors, and corporate responsibility issues.

From April 2022 onwards, fund houses will be required to vote on all resolutions.

According to estimates, MFS currently abstain from voting on 10 per cent resolutions. A decade ago, they used to abstain from voting on 80-90 per cent resolutions.

“It is a good step. MFS can bring some degree of transparency. Given the high promoter holdings, MFS may not be able to make a big difference. However, their participation will be a big factor,” said Dhirendra Kumar, founder and CEO of Value Research.

Experts said Sebi’s move will help improve corporate governance. However, MFS should not do it merely as a ‘tick-box’ exercise but engage with companies, they added.

In 2019, MFS casted an ‘against’ vote on less than 5 per cent of resolutions.

“Fund managers/decision makers shall submit a declaration on quarterly basis to the trustees that the votes cast by them have not been influenced by any factor other than the best interest of the unit holders. Further, trustees in their Half Yearly Trustee Report to Sebi, shall confirm the same,” said Sebi in the circular.

Sebi has said that voting has to take place at the fund house level. However, scheme-level voting will also be allowed in certain cases.

“In case the fund manager(s) of any specific scheme has strong view against the views of fund manager(s) of the other schemes, the voting at the scheme level shall be allowed, subject to recording of a detailed rationale for the same,” Sebi has said.

Mutual funds own close to 7.5 per cent in Nse-listed companies.