At companies, most management decisions have an impact on shareholders wealth. But, not all decisions affect every shareholder equally. In simple words, sometimes, corporate decisions are taken in such a way that, minority or nominal shareholders may not always feel the impact of the management decisions, but the large shareholders do. For example, royalty paid to the promoter for extending its goodwill to the company. Such a decision may help promoter earn by way of royalty but nominal shareholders stand to lose. This is just an example and there could be many more, which can have a bearing on shareholders wealth.

You see, many a times minority shareholders don't recognise the impact of resolutions passed, on their wealth and long-term well-being of the company they are invested in. On the contrary, institutional investors are well-equipped to gauge the impact of many such resolutions on their investments. Thanks to the sharp acumen of the research team they employ. For this very reason of professional expertise, at PersonalFN we harped upon why investors who want to invest in equities should do so through mutual funds.

Mutual funds have better bargaining power than an individual shareholder. More often individual shareholders are reluctant to actively participate in the voting. As against that, if mutual funds take a firm stand in favour or against any resolution, the company may have to take their opinion seriously on account of greater interest they depict through huge investments.

Earlier, mutual funds used to refrain from voting on important issues at Annual General Meetings (AGMs) or even otherwise. However, they have become increasingly active of late. As reported by the Financial Express, recently mutual funds have actively casted their votes in July-September quarter of the current fiscal. Among top 10 fund houses, ranked as per their Asset under Management (AUM), Franklin Templeton remained the most active one. It voted on maximum resolutions (8,214). Franklin Templeton Mutual Fund and DSP BlackRock Mutual Fund didn't abstain from voting on any of the resolutions. In other words, they casted votes either in favour of or against resolutions passed. Similarly, HDFC Mutual Fund ranked 3rd in the list of top 10 fund houses with minimum abstinence. IDFC Mutual Fund, Franklin Templeton Mutual Fund and SBI Mutual Fund have voted the most against management proposals.

The fund houses have casted their votes vociferously on issues that include:
 

• Appointment / re-appointment of directors, auditors
   
• Sale or transfer of assets
   
• Employee Stock Ownership Plan (ESOPs)
   
• Royalty payments
   

PersonalFN is of the view that mutual fund houses have rightly voiced their views on management decisions, given the fact they too are effectively managing long-term wealth of investors who have entrusted them while managing hard earned money. PersonalFN believes, if mutual funds continue to vote actively on crucial issues, company managements may remain under pressure to take prudent decisions which are in the long-term interest of the company and which can build shareholders wealth.

Mutual funds combined together, hold meaningful stake in many of the listed companies. Good corporate governance is an important indicator of how the company is doing. Keeping this in mind, the Securities and Exchange Board of India (SEBI) has asked mutual fund houses to diligently exercise their voting rights. As per the disclosure requirement of SEBI, mutual fund houses have to explain rationale for their voting within 10 days from the end of each quarter. Again, this is a good move as this may compel mutual fund houses actively participate and cast their votes.

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