SEBI releases guidelines on key mutual fund employee compensation

In a circular issued on Wednesday, market regulator Securities and Exchange Board of India (SEBI) stated that a minimum of 20% of the salary of key employees of asset management companies (AMCs) must be invested in Mutual Fund units.

It has been determined that a portion of the salaries of the Key Employees of the AMCs will be paid in the form of units of the scheme(s) in order to balance the interests of the Key Employees of the AMCs with the unitholders of the mutual fund schemes, according to the circular.

According to the circular, a minimum of 20% of the salary/perks/bonus/non-cash compensation (gross annual CTC) of Key Employees of AMCs will be paid in the form of units of Mutual Fund schemes in which they have a role/oversight, net of income tax and any statutory contributions (i.e. PF and NPS).

The CEO, CIO, COO, fund managers, and others are key employees. The AMCs' main employees will include:

i. The Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Risk Officer (CRO), Chief Information Security Officer (CISO), Chief Operation Officer (COO), Fund Managers, Compliance Officers, Sales Heads, Investor Relation Officers (IRO), heads of other divisions, and AMC Dealers;
ii. The CEO's direct reportees (excluding the Personal Assistant/Secretary);
iii. Research and Fund Management teams;
iv. AMCs and Trustees may identify and include other employees.

The order restricts exchange-traded funds (ETFs), index funds, overnight funds, and current closed-ended schemes. The payout paid in mutual fund units will be locked in for a minimum of three years or the scheme's tenure, whichever is shorter, as per the regulator.

It stated that the provisions of this circular would take effect on 1st July 2021.