Markets regulator Sebi on Friday came out with guidelines on votes cast by mutual funds to further improve transparency and encourage such fund houses to diligently exercise their voting rights in best interest of the unit holders.
Mutual funds, including their passive investment schemes like index funds, exchange-traded funds (ETFs), will be required to cast votes compulsorily in respect of related party transactions of the investee companies and corporate governance matters, Sebi said in a circular.
In addition, mutual funds will have to cast votes on corporate governance matters, including changes in the state of incorporation, merger and other corporate restructuring, and anti-takeover provisions as well as capital structure, including increases and decreases of capital and preferred stock issuances.
Also, casting of votes would be necessary for stock option plans and other management compensation issues, social and corporate responsibility issues, appointment and removal of directors and any other issue that may affect the interest of the unit holders.
In case of the mutual funds having no economic interest on the day of voting, Sebi said it may be exempted from compulsorily casting of votes.
The vote would be cast at the mutual fund level.