MUMBAI: In a move to bring additional accountability in the asset management industry, the Securities and Exchange Board of India today said that asset management companies must pay at least 20 per cent of gross salary of key employees in the form of the units of the scheme managed by them.
“In order to align the interest of the key employees of the AMCs with the unitholders of the mutual fund schemes, it has been decided that a part of compensation of the key employees of the AMCs shall be paid in the form of units of the scheme,” the regulator said in a circular. The circular will come into effect from July 1.
Sebi said that fund managers that manage index funds, exchange-traded funds, overnight funds and close-ended funds can be exempted from the rule.
The regulator has defined key employees of the AMC as following: chief executive officer, chief investment officer, chief risk officer, chief information security officer, chief operation officer, fund managers, compliance officer, sales head, investor relation officer, heads of other departments, dealers of the AMC.
Other employees include individuals directly reporting to the CEO excluding personal assistant, fund management team and research team and employees as identified by AMCs.
The regulator has mandated that in case the fund manager manages only one scheme, then half of the 20 per cent should be paid through the units of his fund and rest in the form of units of a scheme whose risk value as per the risk-o-meter is equivalent or higher than the scheme managed by the fund manager.
Sebi’s move comes in the wake of concerns raised by several market participants that fund managers’ remuneration is not reflected by the performance of the schemes managed by them. In the current setup, fund managers are paid fixed compensation by AMCs with no reflection of their fund’s performance.
“No redemptions of the said units shall be allowed during the lock-in period. However, AMC may decide to have a provision of borrowing from the AMC by key employees against such units in exigencies such as medical emergencies or on humanitarian grounds,” Sebi said.
Further, Sebi said that AMCs will have the power to clawback the units allotted to the fund manager in the event of violation of code of conduct or fraud. “The compliance of the provisions of this circular shall be ensured by the AMCs and monitored by the Trustees. Any non-compliance in this regard shall be reported in the quarterly CTR and half-yearly trustee report,” the regulator said.