The new stewardship code will help institutional investors protect their clients’ wealth, improve corporate governance, and promote the development and regulation of the securities market.
SEBI (Securities and Exchange Board of India) has decided that all mutual funds and alternative investment funds shall mandatorily follow a new stewardship code in relation to their investment in listed equities.
“The importance of institutional investors in capital markets across the world is increasing the world over; they are expected to shoulder greater responsibility towards their clients/ beneficiaries by enhancing monitoring and engagement with their investee companies,” SEBI said in a circular.
The new stewardship code – approved by India’s Financial Stability and Development Council – is intended to help institutional investors protect their clients’ wealth, improve corporate governance, and promote the development and regulation of the securities market.
The principles contained in the stewardship code require institutional investors to:
- formulate a comprehensive policy on the discharge of their stewardship responsibilities, publicly disclose it, review and update it periodically
- have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it
- monitor their investee companies
- have clear policies on intervention in their investee companies, and for collaboration with other institutional investors where required to preserve the interests of the ultimate investors
- have a clear policy on voting and disclosure of voting activity
- report periodically on their stewardship activities
The stewardship code, available here (Annex), comes into effect from the financial year beginning 1 April 2020.