Its election season in a few States and the EC is busy exhorting all of us to vote. But do Indian mutual funds exercise their vote?
With their total assets crossing ₹14 lakh crore, Indian mutual funds now command considerable clout as institutional investors both in the domestic stock and bond markets. But how far do MFs actually use this clout? Do they actively vote out corporate decisions when participating in shareholder meetings? The voting policy disclosures of fund houses for the year ended March 2016 suggest that they mostly don't.
Most mutual funds have either voted in favor of proposals (83.1%) or decided to largely abstain (12.5%) from voting in resolutions put forth by their investee companies in 2015-16 based on an analysis of voting disclosures from 30 fund houses. The number of instances where mutual funds have voted against a proposal mooted by the management is very low (4%) on an aggregate basis.
In March 2010 the regulator SEBI, in order to give mutual funds a bigger role in ensuring good corporate governance, made it mandatory for AMCs to establish policies for exercising their voting rights and report their voting record in the meetings of their investee companies.
The Value Research analysis, which looks at voting data disclosed by as many as 30 fund houses for FY16, shows that MFs voted yes for over 36,000 proposals out of a total 43,413 proposals. It was only in 1809 proposals that fund houses voiced their displeasure, by voting 'against'. In as many as 5435 proposals, fund houses decided to 'abstain'.
Agreed!
Fund houses such as PPFAS, Motilal Oswal, JM Financial, DSPBR, Axis, IDBI and Tata have the highest share of 'for' votes, with 98% being the minimum in this club. This shows that these MFs were mostly in agreement with the company managements with regard to most decisions. Interestingly, PPFAS voted 'for' in 100% of proposals put forth by its investee companies. Motilal Oswal voted 'for' in 99.72% of proposals. The three biggest fund houses by assets i.e. HDFC (96%), ICICI Prudential (82.6%) and Reliance (87%) also have high share of 'for' votes.
Against-meter
If you are looking for the more activist fund houses- those who have voted against corporate proposals, IDFC and Franklin Templeton make the cut. IDFC Mutual Fund turns out to be the fund-house which had the highest share of 'against' votes in its investee companies' proposals at 16.59%. Franklin Templeton voted 'against' in nearly 10.5% proposals put forth by its investee companies, followed by Goldman Sachs (whose onshore mutual fund schemes have now been sold to Reliance MF) at 8.19% and Taurus MF at 8.01%.
Abstain-masters
Then there were the MFs who used 'NOTA' and abstained from voting. Indiabulls MF abstained from voting in all the 999 proposals put forth by its investee companies in FY16. The reason? The fund house states that the AMC does not own more than 0.25% of the paid up capital of any of the companies. Next on the 'abstain-list' is LIC Nomura, which abstained from voting in 95.73% of proposals. Union KBC MF, where KBC Asset Management of Belgium has now exited, abstained from voting in 70.47% proposals.
India's only direct-to-investor fund house Quantum MF also abstained from voting in 60.58% proposals. But the fund house has reasoned that the option to 'abstain' from voting is with regard to companies which are part of the index fund - these securities are not actively researched and managed.
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