NEW DELHI: Prodding mutual funds to act as conscience-keeper of listed firms, SEBI has asked them to inform the investors on an urgent basis about their support or opposition to various business decisions of the companies.

The market watchdog is of the view that the fear of a possible opposition by institutional investors like mutual funds being made public would force the companies to follow best corporate governance practises in their businesses.

At the same time, small investors would benefit from the knowledge of stance taken by MFs, in their capacity as major non-promoter shareholders of listed firms, on any business proposal made by the companies, an official said.

Mutual funds collect money from their investors and invest the capital thus garnered in the shares of various listed companies, besides debt bonds and other securities, becoming their major institutional shareholders.

This gives them a significant say in the companies’ major business proposals, which require approval from shareholders.

Interestingly, it was a stiff opposition from mutual funds like Reliance Mutual Fund , SBI MF and Templeton MF , which led to the circumstances exposing the Satyam Computer fraud — one of the country’s biggest ever corporate scam.

In an investor conference after Satyam’s announcement of a Rs 8,000-crore acquisition of two firms promoted by the family of its then chief B Ramalinga Raju in December 2008, these funds had strongly opposed the deal citing bad corporate governance practises.

The deal had to be called off, but not before Satyam’s market value plunged by more than half. The issue finally snowballed into a fraud involving thousands of crores worth rupees.

However, investor activism by mutual funds is limited to only a few cases like Satyam in India, although such a practice is quite prevalent in countries like the US and UK.

After the Satyam case, a case was made to encourage investor activism by mutual funds in India also, and subsequently SEBI asked the MFs in March 2010 to actively voice their support or opposition on business proposals made by the listed companies.

Following its earlier advice, SEBI has now asked the fund houses to disclose the stance taken by them on a fast-track basis.

Until the latest circular sent by SEBI to the fund houses and their industry body Amfi, there was no clarity whether the MFs should disclose annually their votes on the companies’ business proposals or on an as-and-when-it-happens basis.