Asset management cos' junior staff to compulsorily make minimum investments in mutual funds: Sebi

10:12 PM Sep 20, 2021 | PTI

Sebi on Monday said junior staff of asset management companies will have to invest at least 20 per cent of their gross salaries in a phased manner starting from October 2023.

The designated employees will be mandatorily required to invest 20 per cent from October 1, 2023, while the junior employee will be required to invest in a phased manner, Sebi said in a circular.


For junior employees, 10 per cent of the compensation of such employees will be invested in the mutual fund units of the fund house from October 1, 2021. From October 1, 2022, this will be increased to 15 per cent and from October 1, 2023, it will be increased up to 20 per cent.


It further said that all junior employees will be mandatorily required to invest 20 per cent from October 1, 2023.

A designated employee of the AMC below the age of 35 years (excluding CEO, head of any department and fund managers), will be deemed as a junior employee.

The phased implementation for junior employees will cease to apply from the date such employee attains the age of 35 years.

The regulator said units allotted to the designated employees will be subject to clawback in the event of gross violation of code of conduct or fraud or gross negligence by them.

The clarification comes after Sebi received representations from the mutual fund industry and recommendations of the regulator's Mutual Funds Advisory Committee.

The regulator, in April, had asked AMCs to pay at least 20 per cent of the gross salary of key employees in the form of the units of the scheme managed by them.

"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 had said.

The new rule covered all key employees, who have been defined as heads of various functions and all employees who are involved in the fund management process -- fund managers, research teams, and dealers, among others.

The rule was aimed at aligning the interest of the key employees of AMCs with the unitholders of the mutual fund schemes.

In a clarification, Sebi said that investment in units of the scheme will be made on the day of payment of salary.

The previous month's closing assets under management (AUM) will be taken for apportioning the investment across eligible schemes.

According to the regulator, all non-cash benefits and perks will be accounted for in CTC at the perquisite value. However, superannuation benefits and gratuity paid at the time of death or retirement, will not be included in the CTC.

The perquisite value of interest on loan availed by the designated employees against the units from the AMC will not be included in the CTC, it added.

Designated employees may set off their existing investments as on date of the applicability of the alignment circular, if any, against the fresh investments as required in the same schemes.

Such employees may set off their units, for which the required lock-in period of 3 years is expired, against the fresh investments required to be made in the same schemes as per the provision.

In such cases, AMC will have to ensure that such units are locked in for the further period of 3 years or tenure of the scheme, whichever is less.

About the redemption of liquid mutual fund units, Sebi said units of designated employee invested will get automatically redeemed on the expiry of the mandatory lock-in period.

In respect of open-ended schemes, the regulator said after the expiry of the mandatory lock-in period, a designated employee can redeem their units in open-ended schemes twice in a financial year with the prior approval of the compliance officer by following a prescribed procedure.

In case of a request for redemptions made by the compliance officer, the competent person to approve the same will be the chief executive officer.

The investment of the designated employees will be made in the 'growth option' of the mutual fund schemes. For schemes where a growth option is not available, the investment will be made in the 'reinvestment of income distribution cum capital withdrawal option'.

For schemes where both the above options are not available, the investment will be made in the 'payout of income distribution cum capital withdrawal option'.

In the Fund of Funds schemes, Sebi said only fund managers of such schemes will be required to invest.

It, further, said Funds of Funds schemes investing only in a single ETF will also be exempted from the rule.

The fund managers that manage index funds, exchange-traded funds, overnight funds and close-ended funds have already been exempted from the rule.

In all cases of deferred compensation, including employee stock options, the regulator said AMC will have to decide whether the deduction of 20 per cent of such deferred compensation (perquisite value less taxes), should be on the date of grant or exercise.

However, the policy should be the same for all designated employees of the AMC, in a given financial year.

"Any unconditional compensation in any form, which was granted before the issuance of the alignment circular, but is unpaid as on the date of the alignment circular i.e, April 28, 2021, shall not be included in the CTC," it added.

Sebi said AMCs will have to ensure that the necessary audit trail is maintained to verify compliance with the new provisions.

Concerning modalities for the contribution of the designated employees in close-ended schemes, Sebi said required investment in close-ended schemes will be made in the units of any open-ended schemes having risk value equivalent to or higher than the mandated close-ended plans.

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