SEBI : Independent Directors on Boards of AMCs and Trustee Companies

SECURITIES AND EXCHANGE BOARD OF INDIA

CHIEF GENERAL MANAGER
MUTUAL FUNDS DEPARTMENT

All Mutual Funds Registered with SEBI
Unit Trust of India
Association of Mutual Funds in India

Dear Sirs,

Independent Directors on Boards of AMCs and Trustee Companies

According to Regulation 16(5), an independent trustee should not be associated in any manner with the sponsor. It was clarified to all mutual funds vide SEBI Circular no MFD/CIR/11/354/2001 dated December 20, 2001 that certain categories of persons cannot be considered as independent directors of AMCs and trustee companies.

With a view to implementing the regulation in letter and spirit and improving corporate governance standards in mutual funds, it is now clarified that the persons providing any type of professional service to the mutual fund, asset management company, trustee company and the sponsors shall be considered as associate directors of AMCs or trustee companies, as the case may be. Also, the persons having any material pecuniary relationship with these entities which in the judgement of the trustees may affect independence of directors shall be treated as associate directors.

You are advised to classify your existing directors of AMC and trustee company as “associates” or “independent” in the light of the above clarifications and inform us, in case the composition of directors does not comply with the requirement of 50% or 2/3rd independent directors of AMC or trustee company and the steps proposed to be taken by you to ensure compliance with the Regulations.

Considering the above clarifications, the format for submitting the bio-data of directors of AMCs and trustees to SEBI, as prescribed in the aforesaid Circular dated December 20, 2001, may please be revised by including the following clauses:

1. The following new sub-clauses 4 and 5 may be included in Clause VI of the format –

4. Have you been providing any professional service to the mutual fund, AMC, trustee company or sponsors?
5. Do you have any pecuniary relationship with the mutual fund, AMC, trustee company or sponsors?

2. The following new clause 5(iii) may be included in the format specified for the use of trustees –

(iii) The director does not have any material pecuniary relationship with the mutual fund, AMC, trustee company or sponsor which in the judgement of the trustees may affect independence of director (applicable in case of independent directors).

Further, it is clarified that Clause 3 in the aforesaid SEBI circular dated December 20, 2001 pertaining to cooling off period shall be applicable in the above cases also.

The above clarifications are being issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.

Yours faithfully,

P. K. NAGPAL