CHIEF GENERAL MANAGER
MUTUAL FUNDS DEPARTMENT

MFD/CIR/17/21105/2002
October 28, 2002

All Mutual Funds Registered with SEBI
Unit Trust of India
Association of Mutual Funds in India

Dear Sirs,

Sub: Appointment of Independent Directors

As you are aware, under regulation 21(d) and 16(5) of SEBI (Mutual Fund) Regulations, 1996, all mutual funds are required to have a minimum of 50% and two-third independent directors on the Boards of AMC and Trustee company respectively. SEBI has also issued guidelines in the past pertaining to independent directors. It has been observed that sometimes in case of resignation of an independent director, the boards of AMC/Trustee Company do not have the required minimum number of independent directors. At times an unduly long period of time lapses before the outgoing independent director is replaced.

In order to implement the Regulations in letter and spirit, it has now been decided after discussions in the meeting of SEBI Mutual Fund Advisory Committee that the AMC/Trustee Company must appoint independent director(s) in place of the resigning director(s) within a period of 3 months from the date of resignation. Where a mutual fund is unable to meet this time limit, it should report to SEBI explaining the reasons for non-compliance.

It is advisable that the mutual funds maintain a panel of eligible persons who could be appointed as independent directors as and when required. Mutual funds may also consider appointing more than the required minimum number of independent directors in order to enhance the standards of corporate governance and also to meet the regulatory requirement in case of resignation of an independent director.

These guidelines are being issued in accordance with the provisions of Regulation 77 of SEBI (Mutual Funds) Regulations, 1996.

Yours faithfully,
 
 

P.K.NAGPAL