Is SEBI's move to make MFs as watchdog feasible?

SEBI's decision that Indian mutual funds should play a greater role in corporate governance of companies they invest in, puts these funds one step ahead of their global peers. However, CNBC-TV18's Mrinalini Krishna finds out that implementing this will not be easy.

Market regulator SEBI wants mutual funds to play a greater role in India Inc's corporate governance. It has said that mutual funds will have to make public the stand they took on the decisions or proposals put forward by the board, or stakeholders, of the company they have a stake in. Many have welcomed this SEBI decision.

Karina Litvack, Director - Head of Governance & Sustainable Investment, F&C Investments said, "So it is not just a case of buying a stock, holding it and then selling if you don't like it. What we see that actually having a dialogue with companies, acknowledging that things change overnight, acknowledging that expectations of good practice evolve over time and therefore we have an important role to play in bringing that dialogue onto the table and getting companies to improve."

Some even say this move by the SEBI will bring more transparency for those investing in mutual funds.

Reliance Mutual Fund's Executive VP - Equities, Sunil Singhania said, "Individually we all have tried in all bits and pieces, in our investing companies to object to a few of the resolutions which the companies were basically intending to pass. However this move is very positive in the sense that it now forces you to do it."

Others are skeptical. They point out that fund houses may shy away from this, since on average, 70 percent of their Assets Under Management are dependent on corporates. They also point out that mutual funds have an easier option -- sell the stock.

Joe Manseuto, CEO, Morningstar said, "Typical MF portfolio managers, fund organizations find it much easier just to sell the stock rather than investing the time it takes to fight that governance battle."

This is not the first time SEBI has tried to surpass global standards in bringing the Indian MF industry at par with its global peers. But what it can do to plug the sell-out loophole remains to be seen.