Fund managers and chief executives must be paid a fifth of their compensation in the form of units of their mutual fund schemes, the stock markets regulator said on Wednesday, in an attempt to make them more accountable for their investment decisions
Fund managers and chief executives must be paid a fifth of their compensation in the form of units of their mutual fund schemes, the stock markets regulator said on Wednesday, in an attempt to make them more accountable for their investment decisions.
The Securities and Exchange Board of India (Sebi) also said the compensation paid as mutual fund units will be locked in for at least three years or the tenure of the scheme, whichever is less.
In cases of violation of code of conduct, fraud and gross negligence, the units will be clawed back, and the redeemed amount will be credited to the scheme.
Exchange-traded funds (ETFs), index funds, overnight funds and existing close-ended schemes have been excluded from the order.
“It solves a dual purpose; firstly now, key persons will have minimum 20% of their own salary in their own funds, which is like eating from your own restaurant plus, obviously, when compliance is aligned with money and penalty, it works even better," said Anant Ladha, a mutual fund distributor.
The Sebi circular said the compensation includes salary, perks, bonus, non-cash compensation net of income tax and any statutory contributions such as provident fund and National Pension Scheme (NPS). The new rule will take effect on 1 July. Sebi added that apart from CEOs and fund managers, chief investment officers, chief risk officers, chief information security officers, chief operation officers, fund managers, compliance officers, sales heads and dealers of the AMC will be paid a part of their compensation as mutual fund units.
While Sebi has barred redemption of units during the lock-in period, these key employees can borrow from the AMC in exigencies such as medical emergencies or on humanitarian grounds.
Moreover, key employees would not be able to redeem such units within the lock-in period in case of resignation or retirement before attaining the age of superannuation.
For dedicated fund managers managing only a single scheme or single category of schemes, 50% of the compensation can be as units of the same scheme or category and the remaining 50% of units of those schemes whose risk value is equivalent or higher than the scheme managed by the fund manager.
Kaustubh Belapurkar, director, manager research, Morningstar Advisor India, said: “Manager skin in the game is always a positive signal for investors. Currently, only a few countries like the US require disclosures around manager investments in their funds."
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