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Explained: All about SEBI's rule asking mutual fund managers to invest a fifth of their salaries in own schemes

The regulator wants to ensure that the interests of fund managers are aligned with those of the unitholders

April 30, 2021 / 09:49 AM IST

On April 28, the capital market regulator, Securities and Exchange Board of India (SEBI) issued a circular regulating fund manager compensation. The new rule makes it compulsory for top officials of mutual funds to invest 20 percent of their salaries in their own schemes. The idea behind the move is that some fund houses take excessive risks while chasing returns, thus possibly jeopardizing the prospects of schemes managed. SEBI wants to make sure that the interests of the fund managers are aligned to those of the unitholders. The question is: Will this lead to better fund management and better returns?

What portion of a fund manager’s salary is to be invested in schemes of the same house?

The new rule says 20 percent of a fund manager’s salary is to come by way of mutual fund (MF) units that he/she manages. The salary is the gross annual CTC (cost-to-company), less income taxes paid and statutory contributions such as Employees’ Provident Fund and the National Pension Scheme. The 20 percent threshold is just the minimum. MFs are free to fix a higher threshold.

Are fund managers the only employees whose salaries will get affected?