SEBI Revises Skin-in-the-Game Rules for Mutual Fund Employees
The Securities and Exchange Board of India (SEBI) has made changes in the skin-in-the-game requirements for asset management companies’ (AMCs) listed employees such as the chief executive officer (CEO), chief investment officer (CIO), and fund managers. Previously, they were required to invest 20 percent of their pay in mutual fund units so that they could align investors’ interests to a greater extent.
SEBI has amended this requirement in the new circular by introducing a slab-wise structure. Employees getting less than Rs.25 lakh as cost-to-company (CTC) are exempted from the mandatory investment in units of a mutual fund. That earning above that, however, will have an investment obligation ranging between 10-18 percent or 12.5-22.5 percent of CTC based on the AMC’s decision.
The new Clause 6.10.1.1 of the Master Circular on Mutual Funds, according to the March 21 circular, provides that at least a percentage of an employee’s gross annual salary after excluding income tax and compulsory contributions like Provident Fund (PF) and National Pension System (NPS) shall be invested in mutual fund units connected to his/her work or supervision. The new standards will be effective from April 1, 2025.
SEBI originally mandated the same 20 percent investment across all specified employees. The industry complained, though, that the regulation had disproportionate implications for varying employees, and the requirement was updated. The November 6, 2024, consultation paper presented the suggestions made by the EODB working group that proposed a less stringent measure.
The EODB group has suggested lowering the minimum investment threshold and implementing it slab-wise on the basis of the employees’ CTC. The group also suggested excluding non-cash allowances such as Employee Stock Ownership Plans (ESOPs) in calculating the mandatory investment amount.
These amendments are meant to achieve a balance between control exercised by regulators and the pragmatic interests of mutual fund staff while ensuring investor faith in fund management conduct.
