Voting from Mutual Funds: What is all issue?

Every Equity shareholder has the Right to vote when it comes to resolution or other decisions about the company. Because that is what makes the company owner, but that is in theory. What about reality?

Different types of shareholders saw a share in the company differently. Traders don’t care about all such things. Investors do care, but other classes of investors act differently. Retail investors, Though, have a vote, but their voting doesn’t make any sense. This is because so many of them don’t care. On the other hand, significant institutional holdings do matter as they have their directors on board. So the question is how to see all this.

I am writing on this because I was reading one report that the Securities and Exchange Commission is keeping a close watch on this issue makes it more critical. Recently SEBI, the Regulator of the Indian capital market, Tells Mutual funds to be more active. Why?

Data collated by IiAS, from the fiscal year 2014-15 to December 2020, shows India’s top five fund houses—SBI Mutual Fund, HDFC Mutual Fund, ICICI Prudential AMC, Aditya Birla Sun Life AMC, and Kotak Mutual Fund—abstained one in four times (24.5%). Or they voted yes (74%).

Just check the For/Against ratio and For/abstained percentage of ICICI as They have more than 50% of their AAUM in Equity.

Why am I doing all this? The recent circular of SEBI made it compulsory for all mutual funds to vote and disclose related to their all scheme and fund manager wise.

I don’t want to stretch this post long.

I want to say that Forcing Active Mutual funds is right as They CHOSEN their companies and found something plus. So it is nothing wrong with voting for such schemes. However, if such investors, insurance companies, and pension funds decide to abstain, it is not healthy for the market. Recently we saw that LIC acted during the Delisting of Vedanta and forced the promoter to increase the price. That move discloses the correct price of Vedanta shares and shows how much the price is undervalued. At the same time, Index funds are not chosen. They are following. FORCING PASSIVE INDEX FUNDS to vote is wrong because they do not have a say in choosing their portfolio.

The move of SEBI is excellent. But we need to think about it more, and more talk is required on this subject.