In order to align the interest of the key employees of asset management companies (AMCs) with the unitholders of the mutual fund schemes, Sebi on Wednesday said a part of compensation of such staffers will be paid in the form units of scheme in which they have a role.
"A minimum of 20 per cent 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," Sebi said in a circular.
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 compensation needs to be paid proportionately over 12 months on the date of payment of such salary/ perks/ bonus/ non-cash compensation. In case compensation is paid in the form of employee stock options, the date of exercising such option will be considered as the date of such payment. Sebi said such mutual fund units would be locked-in for a minimum period of three years or tenure of the scheme, whichever is less.
While Sebi has taken steps to standardise the scheme categories and characteristics of each category, the management of risk return profile of the schemes rests with the AMCs and the key employees. "The move will bring accountability of the performance of the schemes that are dependent upon the key employees of the mutual fund / AMC to share the risk at par with unitholders of the schemes not just with code of conduct as it was earlier but also personal financial accountability with a portion of remuneration getting invested in such schemes," said Omkeshwar Singh, Head RankMF, Samco Securities.
This will further increase the trust of investors in mutual funds, he added.
Further, with a view to allowing the key employees to diversify their unit holdings, in case of dedicated fund managers managing only a single scheme or single category of schemes, Sebi said 50 per cent of such compensation will be by way of units of the scheme managed by the fund manager.
The remaining 50 per cent could be by way of units of those schemes whose risk value as per the risk-o-meter is equivalent or higher than the scheme managed by the fund manager.
It further said redemptions of such units will not be allowed during the lock-in period. However, the AMC may decide to have a provision of borrowing from it by key employees against such units in exigencies such as medical emergencies or on humanitarian grounds, as per the policy laid down by the fund house.
"No redemption of such units shall be allowed within the lock-in period in case of resignation or retirement before attaining the age of superannuation as defined in the AMC service rules," Sebi said.
However, in case of retirement on attaining the superannuation age, such units will be released from the lock-in and the key employee will be free to redeem the units, except for the units in close ended schemes where the units will remain locked in till the tenure of the scheme is over.
The regulator also said units allotted to the key employees will be subject to clawback in the event of violation of code of conduct, fraud or gross negligence by them, as determined by Sebi. Upon clawback, the units will be redeemed and amount will be credited to the scheme, it added.
The compliance of the provisions of this new framework will be ensured by the AMCs and monitored by the trustees.
Any non-compliance in this regard needs to be reported in the quarterly compliance certificate test and half yearly trustee report. Every scheme needs to disclose the 'compensation, in aggregate, paid in the form of units to the key employees', under the provisions of this circular, on the website of the AMC.
The provisions of this circular will not be applicable to key employees having oversight only over ETFs, index funds, overnight funds and existing close ended schemes. Sebi said modalities with respect to contribution of the key employees in close ended schemes and its applicability will be provided in due course. The new framework will be applicable with effect from July 1, 2021, the Securities and Exchange Board of India (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.