Mutual fund investment: Sebi takes this step, makes MF managers more accountable

New Delhi: If you invest in Mutual Funds, then read this piece of news carefully. The market regulator SEBI has decided to make fund managers more accountable to make investments in mutual funds more reliable, by introducing a code of conduct for them. The SEBI has also tightened the disclosure norms with regard to a forensic audit of listed entities. 

The market regulator also decided to strengthen the role of debenture trustees and amend insider trading norms. Here are the key points: 

1. The Sebi board on Tuesday approved the setting up of a limited purpose repo-clearing corporation, a move aimed at boosting repo trading in corporate bonds, the regulator said in a statement. 

2. The board also approved the amendment of mutual fund regulations, to introduce a code of conduct for fund managers including chief investment officers and dealers of asset management companies (AMCs). The chief executive officer (CEO) will now be responsible to ensure that the code of conduct is followed by all such officers. 

3. Currently, mutual fund norms require AMCs and trustees to follow a code of conduct. The Sebi also permitted AMCs to become a self-clearing member of the recognised clearing corporations to clear and settle trades in the debt segment of recognised stock exchanges, on behalf of its mutual fund scheme.

4. The companies will be required to disclose about final forensic audit report, other than for forensic audit initiated by regulatory or enforcement agencies, on receipt by the listed entity, along with comments of the management, if any.

5. In order to address the gaps in the availability of information, Sebi said that listed entities will have to make disclosures about the initiation of forensic audits.

6. The listed entities will make disclosures about the fact of initiation of forensic audit along-with the name of the entity initiating such audit and reasons for the same if available to stock exchanges.

7. Under the new mechanism, the market regulator has allowed informants a time period of three years to report any violation of insider trading rules.

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8. Sebi also strengthened the role of debenture trustees by ensuring that they carry out independent due diligence of the assets on which charge is being created. Also, they would convene the meeting of debenture holders for enforcement of security, joining the inter-creditor agreement under the framework specified by RBI.

9. In addition, the debenture trustees would carry out continuous monitoring of the asset cover including obtaining a mandatory certificate from the statutory auditor on a half-yearly basis.

10. In respect of delisting, Sebi has decided to grant exemption from the reverse book building process for delisting of a listed subsidiary, when it becomes the wholly-owned subsidiary of the listed parent pursuant to a scheme of arrangement. To be eligible to take this route, the listed holding company and the listed subsidiary should be in the same line of business.

11. The board also approved an amendment to norms pertaining to an alternative investment fund, which includes the definition of “relevant professional qualification” and provides that the qualification and experience criteria of the investment team, maybe fulfilled individually or collectively by personnel of key investment team of the manager. 

Notably, SEBI’s new code of conduct is expected to yield good results in the long term. The mutual fund investors will also have increased confidence in fund managers.