Ready to make Stewardship Code for mutual funds more effective, says Sebi member Amarjeet Singh

The Securities and Exchange Board of India (Sebi), which laid down a Stewardship Code for mutual funds nearly five years ago, is mulling to review the code and make it more effective to enable such funds to play a greater role in improving the overall corporate governance levels in the universe of listed companies.

The Securities and Exchange Board of India (Sebi), which laid down a Stewardship Code for mutual funds nearly five years ago, is mulling to review the code and make it more effective to enable such funds to play a greater role in improving the overall corporate governance levels in the universe of listed companies.

The regulator is “willing” to explore how to make the Code more effective so that mutual funds can engage with their portfolio companies and also monitor in a better way, said Sebi's whole time member Amarjeet Singh.

“Sebi has also been actively encouraging mutual funds to discharge their stewardship responsibilities and we are willing to explore how to make this stewardship role of mutual funds more effective,” said Singh, while delivering the keynote address at the Moneycontrol Mutual Fund Summit.

“We already have a code for stewardship, we have six principles, but can we make it better. Going forward, mutual funds, through their voice and through their voting and through their engagement, they can play a significant role in driving better corporate governance practices,” he added.

The Stewardship Code refers to the principles and guidelines laid down for funds to monitor and engage with their investee companies on issues related to corporate governance, environmental, social and governance (ESG), and strategy among other things while also managing any conflict of interest scenarios to ensure that the interest of the investors is always placed first.

It further states that institutional investors, including mutual funds, should actively vote on all board resolutions and also disclose the voting activities.

According to the Sebi whole time member, this assumes significance also because the overall ownership landscape in the Indian stock markets is changing with mutual funds now having a much larger stake.

“The ownership landscape is changing. In the past decade, the shareholding of mutual funds in listed companies has seen a remarkable growth of 2.5 times – from 3.37 percent in March 2014 to 8.95 percent in March 2024,” said Singh.

“Correspondingly, the share of FPI ownership in listed companies is showing a decline,” he added while highlighting the fact that it enables mutual funds to play an active role in ensuring better corporate governance levels in listed companies.

He further said that voting data of Nifty 500 companies shows that institutional investors have been playing an active role and have been particularly vocal in certain categories of resolutions.

“The voting data shows that the highest dissent by institutional investors were related to ESOPs, slump sales, sale of substantial undertakings, related party transactions, director appointments and remuneration. This reflects that a number of institutional investors now focus on compensation, capital allocation and transparency, which is a good sign,” he said.

“Going forward, mutual funds, through their voice, voting and engagement can play a significant role in driving better corporate governance practices,” he added.