In response to the SEBI order for mutual fund unitholders, Radhika Gupta, CEO and MD of Edelweiss Mutual Fund, said that it would be "extremely problematic in implementation".
In a bid to align the interest of mutual fund unitholders with that of key employees of asset management companies (AMCs), SEBI has said that a minimum of 20 percent of the compensation of such staffers will be paid in the form of units of the scheme in which they have a role.
Gupta elaborates that the order applies to not just senior employees but junior research staff, dealers and support function heads.
"These people don’t earn the kind of money CEOs and CIOs do. It (order) is forcing them to lock 20 percent of their income for 3 years. It mandates how much one saves. For a person earning 15-20 lakh, imagine how difficult it is to put away 3-4 lakh," she said in a series of tweets.
SEBI order stipulates that mutual fund units paid to employees would be locked in for a minimum period of three years or tenure of the scheme, whichever is less.
Gupta contends that the order forces fixed asset allocation for MF employees. "So if I run 80-20 debt-equity business that is my forced asset allocation. For a mid-cap fund manager he has to invest in his schemes or a higher risk grad," she said, adding, "just because I run a mid-cap fund doesn’t mean this is my risk appetite!"
She has also questioned why the rules do not apply to "employees of banks, insurance companies and other financial institutions."
Implication is either we will be forced to pay everyone 20pc more hitting the business and cost structure. Or a lot of people won’t work for an MF. Why should a marketing head or CTO deal with this? They don’t even make investment decisions.
— Radhika Gupta (@iRadhikaGupta) April 28, 2021
Suggesting changes to the present order, Gupta said, "If we wanted to build skin in the game a simple rule would do it: for people earning more than 50 lakh, 50 (or some percent) of your investments (not assets) should be in your own funds. Finished."
She further said that 70 percent of her investments are made in Edelweiss MF. "My CIOs, FMs, sales head, and product head also invest meaningfully in our funds. We needed no internal policy or regulation to do this. We love our products, trust our people. It’s called soul in the game," she tweeted.
The SEBI order said, "A minimum of 20 percent 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 key employees of the AMCs shall be paid in the form of units of mutual fund schemes in which they have a role/ oversight."
The compensation paid in the form of units needs to be proportionate to the asset under management (AUM) of the schemes. For this purpose, Exchange Traded Funds (ETFs), index funds, overnight funds and existing close-ended schemes will be excluded.
The new framework will be applicable with effect from July 1, 2021, SEBI said.Key employees of the AMCs include -- Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Risk Officer (CRO), Chief Information Security Officer (CISO), Chief Operation Officer (COO), Fund Manager(s), Compliance Officer, Sales Head, Investor Relations Officer, heads of other departments and dealer of the asset management firm.