Sebi lays down framework to ensure smooth transition in mutual funds

In a circular issued on Wednesday, Securities and Exchange Board of India (Sebi) said this "provision may now be complied with, in a phased manner, within a period of two years".

Sebi said auditors who have conducted audit of mutual fund for more than nine years may continue till the end of 2018-19.

In order to ensure smooth transition at mutual fund houses, Sebi on Wednesday said its new framework with regard to tenure of independent trustees as well as directors will be complied with in a phased manner, within a period of two years. Further, Sebi said auditors who have conducted audit of mutual fund for more than nine years may continue till the end of 2018-19.

The decision comes after the markets regulator received representations from the country’s 42-player mutual fund industry. The regulator, in November, had come out with norms, wherein it said existing independent trustees and independent directors, who have held office for over 9 years (as on November 30, 2017), will continue in their respective positions for a maximum of one additional year.

In a circular issued on Wednesday, Securities and Exchange Board of India (Sebi) said this “provision may now be complied with, in a phased manner, within a period of two years”. Under the norms, an independent trustee, an independent director and an auditor will hold office for a maximum of two terms, with each term not exceeding a period of five consecutive years.

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Such entities will not hold office for more than two consecutive terms. However, they would be eligible for re-appointment after a cooling-off period of three years in the case of independent trustee as well as independent director and five years for auditors.

“During the cooling-off period, such individuals should not be associated with the concerned mutual fund, asset management company and its subsidiaries and/or sponsor of AMC in any manner whatsoever,” Sebi had said.

According to the regulator, the new auditors will need to be completely independent of the previous auditor and should have no association in terms of common brand name and control during the cooling-off period. These frameworks were part of Sebi’s efforts to strengthen the governance structure of mutual funds.