To make asset management companies accountable towards the interests of unitholders of mutual fund schemes, market regulator Securities and Exchange Board of India (SEBI) has mandated that all designated employees of AMC be paid up to 20 per cent of their monthly compensation in units of the schemes in which they have a role or oversight.
Though the SEBI regulation on the compensation package for AMC employees came in April, the regulator has now clarified that all junior employees below the age of 35 years will have to invest a portion of their salary in schemes that they manage in a phased manner. Other employees will be required to invest 20 per cent of their monthly compensation in MF schemes they manage from the current year itself.
What does the circular say?
The scheme, which is akin to stock options (ESoPs) being offered to employees in various companies, is different in that it has been mandated to make managers more responsible towards the investors they serve in a mutual fund scheme. With personal interests being built-in units, it is believed that managers would take utmost care to maximise the gains for investors and unitholders in such schemes.
According to the SEBI circular, junior employees will be paid/invest 10 per cent of their salary in the first year and 15 per cent in the second year of implementation of the new employment rules in units of mutual fund schemes.
In other words, such employees will be required to invest 10 per cent from October 1, 2021, to September 30, 2022, and 15 per cent from October 1, 2022, to September 30, 2023. They will also need to increase such investment to 20 per cent from October 1, 2023, onwards.
Other designated employees (not junior ones) shall be mandatorily required to invest 20 per cent as specified in the SEBI circular with effect from October 1, 2021.
The regulator has clarified that the phased implementation for junior employees will cease to apply from the date such employees attain the age of 35 years. For this purpose, a designated employee of the AMC below the age of 35 years (excluding CEO, head of any department and Fund Managers), shall be considered a junior employee.
Investment to be done in units and schemes
To make the process seamless and transparent, the regulator has mandated that investment in units of the scheme will be made on the day of payment of salary. The previous month's closing AUM shall be taken for apportioning the investment across eligible schemes.
All such investments will have a lock-in period of three years but designated employees have been allowed to set off their units against the fresh investments required to be made in the same schemes. In such cases, AMC will have to ensure that such units are locked in for a further period of 3 years or tenure of the scheme, whichever is less.
Redemption of units locked in will be allowed. For investment in liquid schemes units of designated employees would get automatically redeemed on expiry of the mandatory lock-in period. In the case of open-ended schemes, after the expiry of the mandatory lock-in period, designated employees can redeem their units in open-ended schemes twice in a financial year, with the prior approval of the Compliance Officer.
To ensure that investment by AMC employees is not misused, the redemption of their invested units will not be permitted if an AMC employee is in possession of any material information, which is not yet communicated to investors and which could materially impact the NAV/interest of unitholders.
The investment of the designated employees shall be made in the 'Growth option' of the mutual fund schemes. For schemes where a growth option is not available, the investment shall be made in the 'Reinvestment of Income Distribution cum capital withdrawal option'. For schemes where both the above options are not available, investment shall be made in the 'Payout of Income Distribution cum capital withdrawal option', the circular said.
