Moneycontrol MF Summit: Mutual funds can help ensure better corporate governance standards in listed cos, says SEBI's Amarjeet Singh

Amarjeet Singh, Whole-time member, SEBI

Mutual funds’ rising ownership in Indian listed companies places them in a position to ensure better corporate governance standards in listed companies, Securities and Exchange Board of India (SEBI) whole-time member Amarjeet Singh said in his keynote address at the third edition of the Moneycontrol Mutual Fund Summit.

“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,” he noted. Overall, the ownership of domestic investors has risen from 10 percent in 2014 to 15 percent in 2024. “Correspondingly, the share of FPI ownership in listed companies is showing a decline,” he said. This enables mutual funds to play an active role in ensuring better corporate of listed companies.

He pointed to voting data of Nifty 500 companies to demonstrate how mutual funds can hold listed companies to higher standards. “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.

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SEBI has also been actively encouraging mutual funds to  discharge their stewardship responsibilities and is willing to consider how to make this role more effective, Singh said. “Going forward, mutual funds, through their voice, voting and engagement can play a significant role in driving better corporate gov practices,” he said.

He also focussed on corporate governance within the mutual fund industry. “In order to sustain the current growth story, it is essential for mutual funds to uphold strong governance practices and maintain reputation for integrity and reliability. Good governance assumes greater significance given significant retail participation in mutual funds. They account for 28 percent of the industry AUM,” he said. Also, many of these retail participants are first-time investors. “So, it is very important to maintain their trust in the markets and once the trust is lost, it is difficult to get back the same investors to the markets,” he said.

SEBI has taken several policy measures for strengthening governance and oversight of AMCs, including mandating constitution of audit committees of AMCs as also unit-holder protection committee. “It directly resonates with our investor protection objective, including adoption of healthy practices in terms of sales, advertisements and investor awareness,” he said.

He also emphasised on the importance of self-regulation by the industry. “AMC boards and trustees are relatively closer to the affairs of the AMC than us as regulators. They are better-positioned to identify and address instances of malpractices and misconduct swiftly and more effectively. In this context, considering some front-running instances in the past, we have recently mandated AMCs to implement structured institutional mechanisms, which can proactively identify and deter instances of potential market abuse including front-running,” he said.

ICICI Prudential Mutual Fund was the presenting partner for the summit, while Motilal Oswal Mutual Fund was the co-presenting partner. The conclave’s knowledge partner was Kfintech and event partners were HSBC Mutual Fund and DSP Mutual Fund.