The Ministry of Corporate Affairs has asked the market regulator Securities & Exchange Board of India (Sebi) to examine whether there are any issues of conflict of interest occurring between sponsors of mutual funds, trustee companies and asset management companies (AMCs).

The ministry, taking cognisance of a representation made by a mutual fund industry expert Vijay Gokhale, in a letter to Sebi has asked the regulator to examine the matter at the earliest. Vijay Gokhale, in his representation to Sebi as well as the Corporate Affairs Ministry, said many AMCs carry out practically all activities pertaining to the fund on behalf of the trustees and the AMC is virtually the face and mouthpiece of the fund.

He said there should be an arms length relationship between a trustee company and AMC. But that is not the case in many mutual funds. Mr Gokhale pointed out that many trustee companies do not have an independent place of business or staff of it’s own.

”It is impossible to visualise as to how do the trustees discharge various responsibilities without it’s own staff. It is feared that conflicts of interest occur in this informal arrangement creating great potential for abuse. This has been going on for years,” Mr Gokhale’s communique to Sebi said.

Trustee companies

A P Kurian, Chairman of Association of Mutual Funds of India, however, maintained there is no conflict of interest occurring in mutual funds. When asked why many trustee companies do not have independent staff or office space, he said it was not needed.

Mr Gokhale said at present many trustee companies carry their supervisory functions based on information provided by the asset management company itself and sometimes even the reports submitted by trustees to Sebi are prepared by AMCs.