The Securities and Exchange Board of India (“SEBI”), vide its earlier circulars dated March 15, 2010, March 24, 2014, August 10, 2016 and December 24, 2019, had prescribed guidelines for votes cast by mutual funds.

Now in order to further improve transparency as well as in order to encourage mutual funds/ asset management companies (AMCs) to diligently exercise their voting rights in the best interest of the unitholders, SEBI has vide its circular dated March 5, 2021 (“Circular”), issued the following additional guidelines: 

1. Mutual funds including their passive investment schemes like Index Funds, Exchange Traded Funds etc. are required to cast votes compulsorily in respect of the following resolutions: 

• Corporate governance matters, including changes in the state of incorporation, merger and other corporate restructuring and anti-takeover provisions,
• Changes to capital structure, including increases and decreases of capital and preferred stock issuances;
• Stock option plans and other management compensation issues;
• Social and corporate responsibility issues;
• Appointment and removal of directors;
• Any other issue that may affect the interest of the shareholders in general and interest of the unit-holders in particular; and
• Related party transactions of the investee companies (excluding own group companies). For this purpose term “Related Party Transactions” have the same meaning assigned to them in clause (zc) of Sub-Regulation (1) of Regulation (2) of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015. 

3. Mutual funds having no economic interest on the day of voting may be exempted from compulsorily casting of votes.
4. Votes shall be cast at mutual fund level, however, in case fund manager(s) of any specific scheme has a strong view against the views of fund manager(s) of the other schemes, the voting at scheme level will be allowed subject to recording of detailed rationale for the same.

4. 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 are required to confirm the same in their half yearly trustee report to SEBI.

The Circular will be applicable with effect from April 1, 2021. However, for resolutions not covered under the Circular as mentioned in para 1 above, mutual funds will compulsorily be required to cast their votes with effect from April 1, 2022. 

Please find a copy of the Circular here.

This update has been contributed by Aastha (Partner) and Swaraj Singh Narula (Associate).