Sebi on Wednesday had mandated that minimum 20% of the salary of key employees, including, chief executive officers, fund managers and chief investment officers, has to be in the form of the units of their schemes.
The new rule by markets regulator Sebi on the compensation of key employees of mutual fund houses has stoked a debate on the implications of the order. The rulaims to make mutual fund houses and fund managers more accountable.
The Securities and Exchange Board of India (Sebi) on Wednesday had mandated that minimum 20% of the salary of key employees, including, chief executive officers, fund managers and chief investment officers, has to be in the form of the units of their schemes.
These units will be locked in for a minimum period of three years and employees would not be able to redeem such units.
In the case 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. Here’s how experts reacted to the order.
Radhika Gupta, MD & CEO, Edelweiss AMC
The circular on the skin in the game, while a good idea in spirit, is going to be extremely problematic in implementation. This circular 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 is forcing them to lock 20% of their income for three years. It mandates how much one saves. For a guy earning ₹15-20 lakh, imagine how difficult it is to put away ₹3-4 lakh. We are constraining employee cash flows.
Deepak Shenoy - Founder and CEO - Capital Mind
Awesome circular by Sebi. This is a great move. I put more than 20% of my compensation into our PMS, so I imagine mutual funds will only benefit from this.
Forcing people is never a good idea. Only invest with conviction and trust. Our organization always believes in creating goodwill so people within PPFAS would be proud to invest. Only then can we convince others to join us. Not in favor of this, especially in these tough times.
Shankar Sharma, co-founder, First Global
Skin in the game proposal is something with several bad consequences. If a fund manager withdraws some funds and the market falls after a few days, imagine the accusations will fly; why did he not tell everybody to withdraw! Making managers permanent insiders is not a good idea. It also in no way guarantees any performance. No link at all. And finally, it is like compelling corporate management to buy only their own company stock. How is that at all sensible?
Samir Arora, founder and fund manager, Helios Capital
An equity fund manager better be excited with the funds he or she manages. This is not just a job that you are doing without believing in the thesis. If the fund manager’s risk appetite is lower or higher, he or she is not the right person to manage the fund.
The new guideline would enhance transparency in the investing field as managers would have more skin in the game. Also, with the implementation of this step, the interest of key managers and unitholders of Mutual Fund schemes will be on the same footing. This will lead to an increase in the confidence of the Mutual fund investors in the AMCs and thus help boom the securities market. With this, the watchdog is trying to extend its regulatory claws further into the Mutual fund market.
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