ROLES AND RESPONSIBILITIES OF TRUSTEES UNDER MUTUAL FUND REGULATIONS

[DR.MARIAPPAN GOVINDARAJAN]

Mutual fund

Mutual fund is a fund established in the form of a trust. The mutual fund may raise monies through the sale of units to the public or a section of the public under one or more schemes for investing in securities, money market instruments, gold or gold related instruments, silver or silver related instruments, real estate assets and such other assets and instruments as may be specified by the Board from time to time.  The infrastructure debt fund schemes may raise monies through private placement of units, subject to conditions specified in Securities and Exchange Board of India (Mutual Fund) regulations, 1996.  The mutual fund schemes investing in exchange traded commodity derivatives may hold the underlying goods in case of physical settlement of such contracts.

Trust deed

The instrument of a trust shall be in the form of a deed registered under the Registrations Act, 1908.  The trust deed shall be executed by a sponsor in favour of the trustees named in the Trust deed.  In case no sponsor is associated with the mutual fund the deed shall be signed by a person as specified by the Securities and Exchange Board of India (‘Board’ for short).

Contents of the trust deed

The Trust deed shall contain the following clauses and such other clauses which are necessary for safeguarding the interests of the unit holders-

• minimum number of trustees;
• the trustees shall take into their custody, or under their control all the property of the schemes of the mutual fund and hold it in trust for the unitholders;
• the unitholders would have beneficial interest in the trust property to the extent of individual holding in respective schemes only;
• it would be the duty of the trustees to act in the interest of the unitholders;
• it is the duty of trustees to provide or cause to provide information to unitholders and board as may be specified by the board;
• the trustees shall appoint an asset management company approved by the board, to float schemes for the mutual fund after approval by the trustees and Board, and manage the funds mobilised under various schemes, in accordance with the provisions of the Trust Deed and Regulations;
• the trustees shall enter into an Investment Management Agreement with the asset management company for this purpose, and shall enclose the same with the Trust Deed;
• the duty of the trustee to take reasonable care to ensure that the funds under the schemes floated by and managed by the asset management company are in accordance with the Trust Deed and Regulations;
• the power of the trustees to dismiss the asset management company under the specific events only with the approval of Board in accordance with the Regulations;
• the trustees shall appoint a custodian and shall be responsible for the supervision of its activities in relation to the mutual fund and shall enter into a custodian Agreement with the custodian for this purpose;
• the auditor for the mutual fund shall be different from the Auditor of the asset management company;
• the responsibility of the trustees to supervise the collection of any income due to be paid to the scheme and for claiming any repayment of tax and holding any income received in trust for the holders in accordance with the Trust Deed, Regulations;
• broad policies regarding allocation of payments to capital or income must be indicated
• the acquisition of any asset out of the trust property which involves the assumption of any liability which is unlimited or shall not result in encumbrance of the trust property in any way, shall be forbidden;
• to make or guarantee loans or take up any activity which is in contravention of the Regulations shall be forbidden;
• trusteeship fee, if any, payable to trustees;
• no amendment to the Trust Deed shall be carried out without the prior approval of the board and unitholders is obtained;
• in case a Board of trustees is converted into a trustee company subsequently such conversion shall not require the approval of unitholders; 
• the removal of the trustee in all cases would require the prior approval of the Board;
• the procedure for seeking approval of the unitholders under such circumstances as are specified in the Regulations;
• a meeting of the trustees shall be held at least once in every two calendar months and at least six such meetings shall be held in every year;
• the quorum for a meeting of the trustees;
• the quorum for a meeting of the trustees shall not be constituted unless one independent trustee or director is present at the meeting;
• the minimum number of trustees shall be four.

Trustee

The trustee company holds the property of the mutual fund in trust for the benefit of the unit holders.  The trustees in the form of a board of trustees shall convert to a trustee company within a period of one year from 01.01.2024.

Two-thirds of the trustees shall be independent persons and shall not be associated with the sponsors or be associated with them in any manner whatsoever.

In case a company is appointed as the trustee of a mutual fund, the Chairperson of the board of directors of that trustee company shall be an independent director.

In case a company is appointed as a trustee then its directors can act as trustees of any other trust provided that the object of the trust is not in conflict with the object of the mutual fund.

The trustee shall be appointed after getting the approval of the Board.

Disqualifications for trustees

 A mutual fund shall appoint trustees for its functioning.  No person shall be eligible to be appointed as a trustee unless-

• he is a person of ability, integrity and standing; and
• has not been found guilty of moral turpitude; and
• has not been convicted of any economic offence or violation of any securities laws
• has furnished particulars as specified in Form C.

The trustee of a mutual fund is not eligible to be appointed as a trustee of another mutual fund.

Rights and responsibilities of the trustee

• The trustee shall, with the prior approval of the Board, enter into an investment management agreement.
• The trustees shall have a right to obtain from the asset management company such information as is considered necessary by the trustees.
• The trustees shall approve the policy for empanelment of brokers by the asset management company and shall ensure that an asset management company has been diligent in empanelling the brokers, in monitoring securities transactions with brokers and avoiding undue concentration of business with any broker.
• The trustees shall ensure that the asset management company has not given any undue or unfair advantage to any associates or dealt with any of the associates of the asset management company in any manner detrimental to interest of the unitholders.
• The trustees shall ensure that the transactions entered into by the asset management company are in accordance with these regulations and the scheme.
• The trustees shall ensure that the asset management company has been managing the mutual fund schemes independently of other activities and have taken adequate steps to ensure that the interest of investors of one scheme are not being compromised with those of any other scheme or of other activities of the asset management company.
• The trustees shall ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
• Each trustee shall file the details of his transactions of dealing in securities with the Mutual Fund on a quarterly basis, within the time and manner as may be specified by the Board from time to time.
• The trustees shall be accountable for, and be the custodian of, the funds and property of the respective schemes and shall hold the same in trust for the benefit of the unitholders in accordance with these regulations and the provisions of trust deed.
• The trustees shall take steps to ensure that the transactions of the mutual fund are in accordance with the provisions of the trust deed.
• The trustees shall obtain the consent of the unitholders whenever required.
• The trustees shall quarterly review all transactions carried out between the mutual funds, asset management company and its associates.
• The trustees shall on a quarterly basis review the net worth of the asset management company to ensure compliance with the threshold provided in clause (f) of sub-regulation (1) of regulation 21 on a continuous basis [the asset management company has a net worth of not less than rupees fifty crore deployed in assets as may be specified by the Board].
• The trustees shall periodically review the service contracts relating to custody arrangements and satisfy themselves that such contracts are executed in the interest of the unit holders.
• The trustees shall ensure that there is no conflict of interest between the manner of deployment of its net worth by the asset management company and the interest of the unit- holders.
• The trustees shall periodically review the investor complaints received and the redressal of the same by the asset management company.
• The trustees shall furnish to the Board on a half-yearly basis required reports and certificates.
• The trustees shall exercise – general due diligence, specific due diligence.