Panel moots separate MF Act

Mumbai, May 14: The P K Kaul committee report on the role of trustees of mutual funds MFs has recommended that the level of size and dimen...

Mumbai, May 14: The P K Kaul committee report on the role of trustees of mutual funds MFs has recommended that the level of size and dimension of the mutual fund industry required the governance of a separate Mutual Fund Act.

The committee, appointed by the Securities and Exchange Board of India SEBI, in its report submitted today, felt that a more comprehensive Act was needed to replace the Indian Trusts Act of 1881, which presently governs the MF industry.

A single MF Act would provide a uniform regulatory framework for all MFs, including Unit Trust of India, which is now governed by a separate statute. The UTI Act could be repealed through the MF Act, the report said. It suggested that the new Act should be enacted on the lines of Section 633 of the Companies Act.

The panel further suggested that the definition of trustee should be revised to read as the board of trustees or the trustee company who hold the property of the MF in trust for the benefit of the unit holders.

By defining the trusteecompany in this manner, the board of directors would, in relation to their liability for acts of omission or commission, be governed in the same manner as the directors of companies are governed under Company Act.

The report also listed all information and documents relating to the compliance process to be adopted by the board of the asset management company AMC.

The committee said the MFs constituted a very important sector of the capital market and time had now come to give due recognition, and like other institutions have an independent statute.

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Trustees would be required to file details of their holdings as in April of that financial year at the time of becoming a trustee of the MF and thereafter change in holdings should be reported at the year end. A monthly report of all transactions of buy or sell for more than Rs one lakh should be made, the committee said.

The panel was of the view that the trustees should be discerning in the appointment of directors of AMC, obtain internal audit reportsat regular intervals and consider reports of independent auditor and compliance reports of AMC at the trustees meeting which should be held frequently.

It suggested that the AMC may adopt a uniform management information system and the board of trustees may adopt a uniform half-yearly reporting format. The panel said provision should be made for registering existing MFs under the statute when enacted.

Of the committee members, N Raval has given a separate dissent note expressing her own views on some aspects of the report, SEBI said.