Tuesday July 8, 02:56 AM
Sebi may look into conflict of interest in MFs
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By ENS Economic Bureau
The Ministry of Corporate Affairs (MCA) has asked market regulator Sebi to check if there are any issues of conflict of interest between sponsors of mutual funds, trustee companies and asset management companies (AMCs). "Since appropriate action in this regard is under the purview of Sebi, it is, therefore, requested that the matter may please be examined and action taken in this regard may please be forwarded to this Ministry at the earliest," MCA said in a letter to the Sebi. In a proposal sent to Sebi by a mutual fund industry expert, Vijay Gokhale, a copy of which was also sent to the ministry, it was questioned whether lack of manpower available to the trustees of MFs is leading to a potential conflict of interest with asset managers. "The board of trustees of a mutual fund are non-executive directors and they are hard pressed in their obligations to make detailed investigations into the reports submitted by the AMC. So there is a probablity of a conflict of interest," said Gokhale. "Many AMCs carry out all activities of the fund on behalf of the trustees and the AMC virtually becomes the face and mouthpiece of the fund. Ideally there should be a distinction between the trustees and AMC to create an ambience that the board of trustees should employ at least one competent individual to study the reports prepared by the asset management company," Gokhale said. "At present many trustee companies carry their supervisory functions based on information provided by the AMC itself and sometimes even the reports submitted by trustees to Sebi are prepared by AMCs," Gokhale added. Sebi officials were not available for comments. AP Kurien, Chairman of Association of Mutual Funds of India, said there is no conflict of interest in mutual funds. When asked why many trustee companies do not have independent staff or office space, he said it was not needed. Potential for conflict •Lack of manpower available to the trustees of mutual funds may be leading to a potential conflict of interest with asset managers. •The MF trustees are non-executive directors and they are hard pressed in their obligations to make a detailed investigation of the reports submitted by the AMC. •Many AMCs carry out all the activities of the fund on behalf of the trustees and the AMC virtually becomes the face and mouthpiece of the fund. • Many trustee companies carry their supervisory functions based on information provided by the AMC itself and sometimes even the reports submitted by trustees to Sebi are prepared by AMCs. •AP Kurien, Chairman of Association of Mutual Funds of India, however, says that there is no conflict of interest in mutual funds and trustee companies do not need independent staff.
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