In a significant relief to mutual fund houses, the Securities and Exchange Board of India (SEBI) has eased the skin-in-the-game guidelines for designated employees such as CEOs, CIOs and fund managers.
According to the latest guidelines, four slabs have been created in which employees drawing below Rs 25 lakh cost to company (CTC) do not have to take any portion of their pay in the units. Those drawing more will need to take either 10-18% or 12.5-22.5 % of their CTC in units, depending on what their asset management company chooses.
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The new guidelines will take effect from April 1, 2025.
Dhirendra Kumar, CEO, Value Research, said “This is a much-needed loosening of the screws. The idea behind the earlier rule was sound—make fund managers eat their own cooking—but the recipe was getting too complicated. The new framework keeps the spirit alive while making it practical. A sensible fix.”
In 2021, SEBI had introduced these guidelines to ensure that designated employees’ interests were aligned with unit holders of their schemes. The rules mandated that they must invest 20% of their annual salary and perks in the schemes they managed. In fact, the designated employees received units of the respective schemes as a part of their salary.
However, there was a pushback from the industry, as asset management companies (AMCs) found it very difficult to retain talent. A CEO of a fund house said that the industry was finding it challenging to retain talent especially at mid-level due to strict guidelines. With the watering down of the circular, the industry will be able to become competitive to attract and retain talent.
Industry sources said that while fixing the number at 20% of salary and perks was debatable by itself, things were worse for junior employees. For example, while a CIO or CEO, who are responsible for all schemes, would see this 20% divided among both debt, equity and other asset classes, a junior liquid fund manager who will see his entire amount being invested a low-return liquid scheme.
“So, while mutual fund houses preach about asset allocation, their own employees were unable to practice it,” said a fund manager.
The new guidelines have corrected this anomaly by allowing designated employees managing liquid fund schemes to invest 75% of the minimum investment amount (to be invested in liquid fund scheme) in higher risk funds of the AMC.
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