CIRCULAR
SEBI/HO/IMD/IMD-PoD-1/P/CIR/2023/117 July 07, 2023
To All,
Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)/
Madam/ Sir,
Sub: Roles and responsibilities of Trustees and board of directors of Asset
Management Companies (AMCs) of Mutual Funds
1. As per the extant regulatory framework, the Trustees hold the property of the
Mutual Fund in trust for the benefit of the unit holders and their primary role is to
ensure that AMCs appointed by them act in the best interests of the unitholders.
Accordingly, any conflict between interests of unitholder and that of AMCs’
stakeholders needs to be addressed by the Trustees. While the SEBI (Mutual
Funds) Regulations 1996 (‘MF Regulations’) provide for restrictions to address
certain scenarios of conflict of interest, there are other areas of conflict which
require specific attention from the Trustees.
2. At the same time, as an AMC is responsible for managing the funds of the
schemes, the board of directors of the AMC is also accountable to ensure that the
interests of the unitholders are protected.
3. SEBI had constituted a Working Group with a view to streamline the responsibilities
at the level of the Trustees and AMCs, to deliberate and make recommendations
for ensuring that Trustees can devote their attention to the fiduciary obligations and
supervisory role cast upon them. Based on the recommendations of the Working
Group and deliberations in the Mutual Fund Advisory Committee (MFAC), it has
been decided to specify the “core” responsibilities for the Trustees of a Mutual
Fund. Accordingly, amendments were carried out in MF Regulations. The
amendments were notified on June 27, 2023 (link).
4. Consequent to the amendment, it has been decided as under:
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4.1. Core responsibilities of the Trustees
4.1.1. As per Regulation 18(25)(C) of MF Regulations, the Trustees shall exercise
due diligence on such matters as may be specified by the SEBI from time
to time. In terms of the said Regulation 18 (25)(C), the Trustees shall
exercise independent due diligence on certain “core responsibilities”, which
are specified as under:
a) The Trustees shall ensure the fairness of the fees and expenses charged
by the AMCs.
b) The Trustees shall review the performance of AMC in its schemes vis-a-vis
performance of peers or the appropriate benchmarks.
c) The Trustees shall ensure that the AMCs have put in place adequate
systems to prevent mis-selling to increase assets under their management
and valuation of the AMCs.
d) The Trustees shall ensure that operations of AMCs are not unduly
influenced by the AMCs Sponsor, its associates and other stakeholders of
AMCs.
e) The Trustees shall ensure that undue or unfair advantage is not given by
AMCs to any of their associates/group entities.
f) The Trustees shall be responsible to address conflicts of interest, if any,
between the shareholders/stakeholders/associates of the AMCs and
unitholders.
g) The Trustees shall ensure that the AMC has put in place adequate systems
to prevent misconduct including market abuse/misuse of information by the
employees, AMC and connected entities of the AMCs.
4.1.2. The Trustees shall take steps to ensure that there are system level checks
in place at AMCs’ end to prevent fraudulent transactions including front
running by employees, form splitting/ mis-selling by distributors etc. The
Trustees shall review such checks periodically.
4.1.3. The Trustees and their resource persons shall independently evaluate the
extent of compliance by AMCs vis-à-vis the identified key areas and not
merely rely on AMCs’ submissions /external assurances.
4.1.4. AMCs shall put in place suitable mechanisms/systems to generate system
based information/data/reports for evaluation and effective due diligence by
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the Trustees. AMCs shall provide alerts based automated reports to the
Trustees as may be required by the Trustees.
4.1.5. The Trustees shall ensure that suitable mechanisms/systems are put in
place by the AMCs to generate system based information/data/reports for
evaluation and effective due diligence by the Trustees. The Trustees shall
also ensure that the AMCs periodically review such systems.
4.1.6. AMCs shall submit exception reports/analytical information to the Trustees,
that add value to the process of exercising their oversight role. The
Trustees shall evaluate the nature and adequacy of the alerts and the
manner of dealing with such alerts by AMCs.
4.1.7. The Trustees shall require the AMCs to furnish, in a true and fair manner,
reports and alerts based on pre-decided parameters including but not
limited to the areas specified as core responsibilities at para 4.1.1 above,
for taking appropriate action.
4.1.8. The Trustees shall periodically review the steps taken by AMCs for folios
which do not contain all the Know Your Client (KYC) attributes / updated
KYC attributes and ensure that the AMCs take remedial steps necessary
for updating the KYC attributes especially pertaining to bank details, PAN,
mobile phone number.
4.2. Third Party Assurances
In order to enable Trustees to focus on the core responsibilities, for
responsibilities other than the core responsibilities mentioned at para 4.1, the
Trustees may rely on professional firms such as Audit Firms, Legal Firms,
Merchant Bankers, etc (collectively referred to as “third party fiduciaries”) for
carrying out due diligence on behalf of the Trustees.
4.2.1. The responsibilities other than core responsibilities, for which the Trustees
may avail services of third party fiduciaries, include the following:
a) Overseeing that AMCs manage the operations of Mutual Fund schemes
independently from other activities.
b) Discharging their role as a custodian of assets on behalf of unitholders in
accordance with MF Regulations and the trust deed.
c) Reviewing the networth of the AMC on a periodic basis to ensure
compliance with prescribed threshold.
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d) Ensuring that the transactions of the Mutual Funds are in accordance with
the provisions of the trust deed.
4.3. Unit Holder Protection Committee
4.3.1. As per Regulation 25(24) of MF Regulations, the AMC is required to
constitute a Unit Holder Protection Committee (“UHPC”) in the form and
manner and with a mandate, as may be specified by SEBI.
4.3.2. In this regard, it is decided that the UHPC shall be responsible for:
a) protection of interest of unit holders of Mutual Fund schemes vis-a-vis
all products and services provided by the AMC.
b) ensuring adoption of sound and healthy market practices in terms of
investments, sales, marketing, advertisement, management of conflict
of interests, redressal of unit holder’s grievances, investor awareness.
c) compliance with laws and regulations and other related processes with
specific reference to operation of the Mutual Fund business.
4.3.3. The UHPC shall, inter-alia, have the following mandates:
a) To review the various compliance issues relating to protection of the
interests of the unit holders.
b) To keep the unit holders well informed of and educated about mutual
fund products, investor charter and compliant handling procedures.
4.3.4. The UHPC shall report its findings to the board of directors of AMC along
with recommendations for action.
4.3.5. The UHPC shall make recommendations relating to protection of interest of
investors as well as monitor its implementation.
4.3.6. The detailed guidelines regarding UHPC are specified at Annexure-1 to
this circular. AMC shall ensure that UHPC is constituted and operates in
compliance with the said guidelines.
4.3.7. In addition to the above functions and responsibilities, the board of directors
of AMCs, from time to time may also assign such other responsibilities to
the UHPC, as deemed fit.
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4.4. Appointment of the Trustee Company
4.4.1. As per Regulation 16 (7) of MF Regulations, in case a company is
appointed as the Trustee of a Mutual Fund, the Chairperson of the board of
directors of that Trustee company shall be an independent director. Further,
a Trustee company, which has already been appointed as the Trustee of a
Mutual Fund shall comply with this requirement within a period as may be
specified by SEBI from time to time.
4.4.2. Accordingly, it is decided that the Trustee company, which has already
been appointed as the Trustee of a Mutual Fund, shall ensure compliance
with the requirement of appointment of independent director as
Chairperson of the board of directors of Trustee company, within a period
of six months from the date of this circular coming into force.
4.5. Meetings between the Trustee Company and the AMC
4.5.1. As per Regulation 25A of MF Regulations, the board of directors of the
Trustee company and the board of directors of the AMC, including any of
their committees, shall meet at such frequency as may be specified by
SEBI from time to time.
4.5.2. Accordingly, the board of directors of the AMCs and the board of directors
of the Trustee Company shall meet at least once a year to discuss the
issues concerning the Mutual Fund, if any, and future course of action,
wherever required.
5. This circular shall come into force with effect from January 01, 2024.
6. This circular is issued in exercise of the powers conferred under Section 11(1) of
the Securities and Exchange Board of India Act, 1992 to protect the interest of
investors in securities and to promote the development of, and to regulate the
securities market.
7. This circular is available at www.sebi.gov.in under the link “Legal ->Circulars”.
Yours faithfully,
Peter Mardi
Deputy General Manager
+91-22-26449233
peterm@sebi.gov.in
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Annexure - 1
1. Membership / constitution:
a) The Chairperson of the Committee shall be an independent director.
b) The UHPC of AMC shall have minimum three directors as members.
c) At least two-third members of the UHPC shall be independent directors of AMC.
If two-third of the total strength results into fraction, then higher number after
rounding up shall be considered.
d) The members of the UHPC will be appointed by the board of directors of AMC.
e) The UHPC shall invite expert / representative of unit holders as an invitee for
matters as it may deem fit necessary.
2. Meetings:
a) The Chairperson of the UHPC shall call the meeting as and when required.
However, at least four meetings shall be held in a financial year.
b) The quorum for meeting shall either be two members or one third of the mem-
bers of the UHPC, whichever is greater, with at least two independent directors.
c) If one-third of the total strength results into fraction, then higher number after
rounding up shall be considered for the quorum.
3. Reporting:
a) The AMC shall present agenda of the UHPC to its members. This shall also in-
clude reports on findings / observations w.r.t matters relating to protection of unit
holders’ interest, arising from audits / reviews etc. undertaken by the AMC, Inter-
nal Auditors etc.
b) The UHPC of AMC shall brief board of directors of the AMC on the proceedings
of the meeting. Further, minutes of the meeting of the UHPC shall also be placed
before the board of directors of Trustee Company.
4. Powers and responsibilities
4.1 Unit holder complaints and redressal
a) Review of unit holder complaints and grievances with ageing of outstanding
complaints on a periodical basis
b) Review of complaints / grievances handling mechanism including reported in-
stances of mis-selling and frauds, if any. Analyse the root cause of investor
complaints, identify market conduct, issues and advise the management appro-
priately about rectifying systemic issues, if any.
c) Review measures and steps taken to reduce unit holder complaints
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4.2 Investor education and awareness
a) Recommendation of policy on utilisation of investor education and awareness
funds
b) Review of various investor education and awareness steps taken by the AMC in-
cluding effective utilisation of investor education and awareness funds on period-
ic basis
4.3 Regulatory and other functions
a) Ensure that the AMC adopts a standard operating procedure for its processes
including timeframe for processing and confirmation of financial and non-
financial transactions, treats unit holders fairly and equally and there is no pref-
erential treatment given to different classes of investors.
b) Ensure compliances with applicable laws with respect to resolving, reporting and
disclosures of complaints and grievances
c) Review of unclaimed amounts of dividend and redemptions and measures taken
by AMC to reduce the quantum of such unclaimed amounts.
d) Review of measures taken by AMC for exit options, voting and obtaining con-
sents as prescribed under the MF Regulations.
e) Review of transfer, transmission, and nomination process.
f) Review of adherence to service standards adopted with respected to various
services adopted by the AMC being rendered by the RTA.
g) Review of measures taken for ensuring timely receipt of dividend and redemp-
tion proceeds, annual reports, and other regulatory communications/disclosures.
h) Ensure timeliness and adequacy of disclosures of material information to the in-
vestors.
i) Review other activities carried out by the AMC (under Regulation 24 (b) of MF
Regulations and its impact on the unit holders of Mutual Fund.
j) Ensure that all conflicts are adequately managed and/or disclosed as per the
conflict-of-interest policy.
k) Review of all investors/scheme compensation to ensure they are fair and appro-
priate.
l) Review instances of market abuse by employees of AMC.
4.4 Review of Unitholder Protection (UP) metrics
a) Ensure that the AMC has approved internal policy for measurement of various
parameters (such as cases of investor compensation, investor complaints, fraud
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incidents impacting any investor/ scheme, consistent underperformance of any
scheme, number of incidents where the agreed Turn Around Time (TAT) has ex-
ceeded with respect to investor related transactions such as redemptions/ re-
dressal of investor complaints/ non-financial transactions, etc., system issues/
incidents/ BCP events impacting investors, data privacy / cyber security incidents
impacting investors) through appropriate UP metrics. The UP metrics should be
approved by the Committee, along with the targeted level / benchmark for each
parameter, where possible.
b) Put in place a mechanism for reporting of the UP metrics to the Committee.
c) Review the reports generated with respect to the UP metrics at least once in a
half year.
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