Stewardship Code
The SEBI Stewardship Code, issued in 2019, establishes principles for institutional investors — including mutual funds, insurance companies, and alternative investment funds — to actively exercise their ownership rights in investee companies, including voting on shareholder resolutions, engaging with management, and disclosing their voting policies and records.
The concept of stewardship in institutional investment referred to the responsibilities of large asset-owning institutions to act as responsible long-term owners of the companies in whose equity or debt they held stakes. The UK Stewardship Code of 2010 (revised 2020) was the most influential global template, establishing that institutional investors had obligations not just to generate returns for their clients but to contribute to the sustainable functioning of the financial system by engaging actively with the companies they owned.
SEBI issued its Stewardship Code for mutual funds and alternative investment funds on March 24, 2020 (with the initial circular in 2019), making India one of the earlier Asian markets to formalise stewardship obligations for institutional investors. The code applied to asset management companies managing mutual fund schemes and to category-I and category-II AIFs. Insurance companies were subject to related guidelines from the Insurance Regulatory and Development Authority of India (IRDAI), which issued its own stewardship guidelines for insurance sector investors.
The SEBI Stewardship Code required covered entities to: (1) formulate and publish a stewardship policy disclosing their approach to engagement, voting, and escalation; (2) monitor investee companies on matters including financial and non-financial performance, corporate governance, capital structure, and environmental and social issues; (3) engage with investee companies when necessary to improve their practices; (4) have a clear voting policy and publicly disclose their vote on every shareholder resolution; (5) report periodically on how they had fulfilled their stewardship responsibilities; and (6) have a clear policy for managing conflicts of interest.
The voting disclosure requirement was the most visible and operationally significant element for Indian mutual funds. AMFI data showed that before the stewardship code, many fund houses disclosed votes only in aggregate or with insufficient detail to assess whether they had supported or opposed specific management-proposed resolutions. Post-code, the SEBI directive that all proxy voting records be publicly disclosed — with justification for votes against management — created a meaningful accountability mechanism. Domestic institutions with group company ties to AMC sponsors faced particular scrutiny on how they voted resolutions related to their sponsor's listed entities.
The practical impact of stewardship in Indian corporate governance was incremental but directionally positive. Several high-profile cases saw mutual fund houses vote against related-party transactions, excessive management remuneration, or auditor appointments that raised independence concerns. During the Zee Entertainment restructuring in 2021-2022, institutional voting behaviour — coordinated through active engagement — played a visible role in the outcome of key resolutions. The involvement of proxy advisory firms such as Institutional Investor Advisory Services (IiAS) and InGovern provided analytical support to fund houses developing voting positions.
Critics of the stewardship code pointed out that its enforcement was limited primarily to disclosure requirements — SEBI could assess compliance with the obligation to disclose votes but had limited means to evaluate the quality of engagement or whether fund managers exercised genuine independent judgement versus rubber-stamping management proposals. Additionally, smaller AMCs without dedicated governance research teams faced resource constraints in meaningfully analysing all shareholder resolutions across their portfolio companies. Nevertheless, the code established a normative framework that raised expectations for institutional ownership behaviour and created reputational costs for fund houses seen to ignore governance failures in their investee companies.