The Ministry of Corporate Affairs has asked market regulator Securities and Exchange Board of India (Sebi) to examine whether there are any issues of conflict of interest occurring between sponsors of mutual funds (MFs), trustee companies and asset management companies (AMCs).
The ministry, taking cognizance of a representation made by mutual fund industry expert Vijay Gokhale, in a letter to Sebi has asked the regulator to examine the matter at the earliest.
Gokhale, in his representation to Sebi as well as the Ministry, said many AMCs carry out practically all activities pertaining to the fund on behalf of the trustees and the AMC is virtually the face and mouthpiece of the fund.
He said there should be an ‘arms length' relationship between a trustee company and the AMC. But that is not the case in many mutual funds.
Gokhale pointed out that many trustee companies do not have an independent place of business or staff of their own.
"It is impossible to visualise as to how do the trustees discharge various responsibilities without own staff. It is feared that conflicts of interest occur in this informal arrangement, creating great potential for abuse. This has been going on for years," Gokhale's communique to Sebi said.
Association of Mutual Funds of India (AMFI) Chairman A P Kurian, however, maintained that there is no conflict of interest occurring in mutual funds. When asked why many trustee companies do not have independent staff or office space, he said it is not needed.
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.
Ideally, an AMC should be an independent company and try to compete for business from a mutual fund and trustees should choose an AMC on merit, he said.
A top official associated with mutual funds also agreed with this viewpoint. However, he said the industry is still not ready for this.
The ministry, taking cognizance of a representation made by mutual fund industry expert Vijay Gokhale, in a letter to Sebi has asked the regulator to examine the matter at the earliest.
Gokhale, in his representation to Sebi as well as the Ministry, said many AMCs carry out practically all activities pertaining to the fund on behalf of the trustees and the AMC is virtually the face and mouthpiece of the fund.
He said there should be an ‘arms length' relationship between a trustee company and the AMC. But that is not the case in many mutual funds.
Gokhale pointed out that many trustee companies do not have an independent place of business or staff of their own.
"It is impossible to visualise as to how do the trustees discharge various responsibilities without own staff. It is feared that conflicts of interest occur in this informal arrangement, creating great potential for abuse. This has been going on for years," Gokhale's communique to Sebi said.
Association of Mutual Funds of India (AMFI) Chairman A P Kurian, however, maintained that there is no conflict of interest occurring in mutual funds. When asked why many trustee companies do not have independent staff or office space, he said it is not needed.
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.
Ideally, an AMC should be an independent company and try to compete for business from a mutual fund and trustees should choose an AMC on merit, he said.
A top official associated with mutual funds also agreed with this viewpoint. However, he said the industry is still not ready for this.
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