SEBI eases skin-in-the-game rules for mutual fund managers, other designated employees

SEBI received feedback from the industry that this was impacting different employees variedly, and that a uniform percentage across employee categories need to be reexamined.

The capital markets regulator has eased skin-in-the-game norms for designated employees of a mutual fund house. Designated employees include chief executive officer (CEO), chief investment officer (CIO) and fund managers.

Designated employees were required to get 20 percent of their remuneration in the units of their mutual funds, to ensure that their interests are aligned with the unitholders. With the latest circular, not all have to receive the same percentage of their cost-to-company (CTC) in the units.

Employees drawing below Rs 25 lakh CTC do not have to take any portion of their pay in the units, while those drawing more will need to take either 10-18 percent of their CTC in the MF units or 12.5-22.5 percent of their CTC in the units depending on what their asset management company) chooses.

In a circular issued on March 21, the Securities and Exchange Board of India (SEBI) said that Clause 6.10.1.1 of the Master Circular issued to Mutual Funds had been revised to the following:

"“A minimum slab wise percentage of the salary/ perks/ bonus/ non-cash compensation (gross annual CTC) net of income tax and any statutory contributions (i.e. PF and NPS) of the Designated Employees of the AMCs shall be mandatorily invested in units of Mutual Fund schemes in which they have a role/oversight."

Then it gave a breakdown of the slabs. The circular's directions will come into effect from April 1, 2025.

Also read: SEBI gives listed cos 3 more months to make minimum disclosures on related-party transactions

The regulator had mandated that the employees get 20 percent of their remuneration in the units of the mutual funds. But SEBI received feedback from the industry that this was impacting different employees variedly, and that a uniform percentage across employee categories need to be reexamined.

Therefore, through a consultation paper issued on November 6, 2024, the regulator had put forward the suggestions of an Ease of Doing Business (EODB) working group.

The EODB working group recommended the following:

a) The minimum mandatory investment amount may be reduced from 20 percent and made applicable slab-wise, based on the CTC of the employees.
b) Non-cash compensation including ESOPs may be excluded from the calculation of minimum mandatory investment amount for the designated employees.