Your mutual fund (MF) has started to throw its weight around. Asset management companies uploaded their voting decisions taken at their underlying investment company’s annual general meetings (AGM) and extraordinary general meetings (EGM) by 31 May, the deadline set by the Securities and Exchange Board of India (Sebi).
In a circular issued in March 2010—a reminder email came on 9 May 2011—Sebi had advised fund houses to record and upload on their home page a list of decisions taken in AGMs and EGMs. Typically, fund houses are asked to either vote for or against a decision; if they abstain from voting, that too needs to be recorded.
Typically, if you invest in equities directly, you get to vote for or against a company’s proposal. But if you invest in equities through MFs, there is little you can do. Hence, Sebi mandated fund houses to stand up and be counted. All fund houses will now have to send one of their officials to attend AGMs and EGMs of companies in which they have invested and place their views.
The genesis of fund houses acting on the unitholder’s behalf lies in a telephonic conference call on 16 December 2008 between Srinivas Vadlamani, former chief financial officer, and B. Ramalinga Raju, founder and former chairman, Satyam Computer Services. Fund managers and analysts attended the call.
During the call, Satyam’s management proposed to acquire 100% stake in Maytas Properties and 51% share in Maytas Infrastructure for $1.6 billion. All hell broke loose on that call. Apart from the companies being into unrelated businesses, it was shocking that both companies were owned by Raju’s children.
At the high-pitched call, fund managers severely opposed the proposal. A few days later, Raju admitted to fraud. Although Satyam investors incurred losses eventually, it was probably one of the few instances in public light where fund managers and analysts protected the rights of minority shareholders and put pressure on a corrupt management to change course.
“Internationally, voting carries a lot of importance. Unfortunately, in India voting has little value. Most retail and institutional investors don’t even participate in voting. Hence, this move is good,” says Sunil Singhania, head, equity investments, Reliance Capital AMC.
Mint Money checked the websites of top 10 fund houses, as per the assets under management (AUM) available at the Association of Mutual Funds of India’s March-end update (fund houses disclose AUMs once a quarter). Most of them have uploaded their details, except three. Barring one, most have mentioned names of companies.
But can MFs make a difference? Says Sethuram Iyer, chief investment officer, Daiwa Asset Management (India) Pvt Ltd: “Small-sized fund houses that have a small portion of their AUM invested in equity may not make a major impact. The only sensible option is to exit the stock if the fund house does not agree with the management’s decision.” Singhania adds that if insurance companies, which have a far bigger holding in companies on account of their corpus sizes, are also mandated to exercise their voting option, shareholder activism can make a significant difference.