While the move is aimed at ensuring that key employees of the mutual fund have a stake in the fund, popularly known as ‘skin in game’, industry executives said, adding that the implementation of the rule could affect the profitability of asset managers and affect personal financial decisions.
SEBI on Monday relaxed the rules for junior employees. It added that executives below the age of 35 will have to invest only 10% of their compensation in the fund house’s MF units in the first year and 15% in the second year (from October 1, 2022), while for others 20% will have to be invested. employees. The industry expected the regulator to exempt junior employees from these rules and reduce some of the earlier rules for senior executives.
Heads of mutual funds, who spoke to ET on the condition of anonymity, said unless the salary package is hiked, there could be an exodus of talent to other financial services firms. “At middle management levels, many individuals aim to buy a home or have other goals to invest in. Making mandatory Investment reduces their cash flow. Such persons are bound to demand more compensation and I already have some ideologues,” said the CEO of a fund house.
Industry executives said analysts and junior fund managers may consider insurance companies, hedge funds, portfolio managers and foreign broking houses that do not follow the ‘skin-in-the-game’ rules.
Kaustubh Belapurkar, Director- Fund Research, Morningstar India said, India is the only country which compels fund managers to invest in their schemes. “India is now the only country that requires funds to disclose the actual compensation amount of managers.”
Legal experts said specific fund houses in global markets usually meet the skin-in-the-game requirements.
“This is a classic case of over-regulation by SEBI, especially when AMCs are required to invest a part of their funds in their schemes. Also, there are no similar rules for other financial intermediaries like banks, insurance companies, PMS , AIFs etc. which also invest their clients’ money in securities markets,” said Anil Choudhary, Partner, Finsec Law Advisors. “Separating AMC’s employees and stipulating a legal mandate for investment not only infringes on the freedom of choice for such employees but may impede AMCs to attract and retain talent.”
Mutual fund CEOs and sales executives, who spoke to ET on the issue, said the need to invest in multiple schemes commensurate with the fund house’s net worth could impact their personal finances. If 80% of the fund house’s assets are in debt and 20% in equity, then the CEO and functional heads, excluding the fund management team, will have to invest in the same proportion.
“Why should I be forced to invest in liquid funds when my personal asset allocation is not required,” said the sales head of a domestic fund house. This will give me only 3-4% return.