Important management decisions have huge impact on share prices. Sometimes, promoters and large shareholders take decisions that disproportionately favour them. Unless minority shareholders collectively oppose such decisions using their voting rights, they can't have any voice in corporate decision making. More often, individual shareholders refrain from voting. Also, past record suggests that mutual funds and insurance companies too do not exercise their voting rights to the fullest, although there has been considerable improvement in their participation of late. Securities and Exchange Board of India (SEBI) has been encouraging mutual funds to actively exercise their voting rights and protect interest of minority shareholders. By investing in mutual funds, investors take indirect exposure to stocks that mutual funds invest in.

To make mutual funds more accountable, SEBI has asked them to release a summary of votes cast by them. SEBI has additionally asked them to explain rationale behind their decisions and give out break up of total votes in favour of and against the proposals put up by companies, on quarterly basis. They will also be required to disclose as to how many times they abstained from voting either in favour of or against the proposals. Furthermore, fund houses are directed to obtain certification of the auditor annually stating that they have satisfied the requirement of making aforesaid quarterly disclosures.

Apart from bringing in more accountability and transparency to mutual fund operations, SEBI wants to ensure that penetration of mutual funds increases. In the past, the regulator has given incentives to mutual fund industry by allowing charging additional expense ratio of 0.30% for assets collected from cities other than top 15 cities. In this regard, now mutual funds will have to disclose details pertaining to Assets under Management (AUM) on monthly basis. This includes;
 

• Mutual fund category-wise AUM
• AUM garnered from other than top-15 cities
• State-wise contribution
• Share of sponsors and their associates in the AUM
• Percentage contribution of various categories such as retail and Institutional in the total AUM
   

PersonalFN is of the view that, the recently released directives aim to protect investors' interest along with increasing penetration of mutual funds. Additionally, they will help monitor the performance of mutual funds on these fronts. Availability of information pertaining to AUM and voting would provide vital inputs to the regulator for framing policies for mutual industry.

Active participation of mutual funds in voting at company meetings works in two ways. It not only protects investors' interest but also keeps check on companies which are reluctant to address issues of minority shareholders. However, PersonalFN is of the opinion that, those corporate which are repeatedly found favouring only promoters should be assessed carefully by mutual funds before making investments. PersonalFN believes that rational opposition to management decisions may positively affect stock prices and thus work in favour of long term investors. Growing activeness of mutual fund houses at shareholders' meetings is a positive change. Now that they have been asked to publish summary of voting along with rationale, investors would be able to track the activeness of mutual funds in corporate decision making. AUM related disclosures may help mutual funds assess their own performance and chalk out strategies for expanding beyond top 15 cities.

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