Mutual funds can play an active role in driving corporate governance amongst listed companies: SEBI's Amarjeet Singh

The mutual fund growth story has significantly changed the company ownership landscape in India, according to SEBI Whole Time Member Amarjeet Singh. He was speaking at the Association of Mutual Funds in India’s MF Summit on March 1. In his speech, he noted that over the past decade, mutual fund shareholding in listed companies has surged from 3.37 percent at the end of March 2014 to 10% by December 2024. This rising trend places mutual funds in a crucial position to influence corporate governance.

“Going forward, I believe mutual funds, through their engagement, voice, and voting, can play a significant role in driving corporate governance,” he said adding that voting data for Nifty 500 companies shows that the highest percentage of votes by institutional investors were related to ESOFs, slump sales, sale of substantial undertakings, related party transactions, and director appointment and remuneration. “This reflects that investors now focus heavily on compensation, capital allocation, and governance issues,” he said.

Singh noted that SEBI has encouraged mutual funds to fulfill their stewardship responsibilities while ensuring the ecosystem grows alongside the industry. “As the industry grows, we must be mindful of whether we have the relevant capacity in different segments, the required skill sets, and the necessary infrastructure and technology to meet investor expectations,” he added. “New avenues for investment, robust infrastructure capable of handling increased volumes, new channels for investment and distribution, and investment education are all crucial areas that need continued development.”

Singh also spoke about recent announcements launched by SEBI such as Chota SIP (Rs 250) which aims to encourage participation from low-income segments and bring more investors into the formal financial system. “This can be potentially a very powerful instrument. However, we need to be a little mindful. In some sense, at least to my mind, it is a delicate product considering the target segment of the investor population. Therefore, very clear and easy to understand, disclosures are very, very significant in the context of this particular product. Investor education aimed at improving the ability of the target investors to appreciate the low ticket schemes and related risks and disclosures will be even more crucial,” he said.

Singh added that even for the recently announced SIF (specialized investment fund), clear disclosure and communication to investors on the risks associated with this product,t including the use of derivatives, will be critical towards its success.