AMC Top Management To Be Paid In Mutual Fund Units: SEBI Rule

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Top management of asset management companies will now be paid 20% of their compensation in units of schemes that they have a role in or oversight of.

This will “align the interest” of key employees of AMCs with unitholders of their schemes, securities market regulator SEBI said in an April 28 circular. Such unit-based compensation will be locked in for a minimum period of three years or tenure of the scheme. The rule comes into effect on July 1.

The Securities and Exchange Board of India has defined “key employees” to include a large numbers of roles ranging from chief executive, chief investment officer, chief risk officer to fund manager, fund management team and research team, compliance officer, sales head, direct reportees to the CEO such as personal assistant or secretary, to trustees.

The circular excludes key employees having role/oversight only over ETFs, index funds, overnight funds and existing close-ended schemes.

Compensation In Units

According to the SEBI circular:

  • Salary includes perks, bonus, non-cash compensation net of income tax and statutory contributions.

  • 20% of the salary to be paid in units of mutual fund schemes in which the key employee has a role/oversight.

  • The compensation in units will be proportionate to the AUM of schemes in which the key employee has role/oversight. ETFs, overnight funds, index funds and existing close ended schemes will be excluded.

  • The compensation in units is to be paid proportionately over 12 months on the date of payment of salary, etc.

  • The units will be locked in for a minimum period of three years or tenure of the scheme whichever is less.

  • To aid diversification of unit holdings, fund managers managing only a single scheme/category of schemes can received 50% of compensation in units via units of the scheme/category managed by him or her. If they choose, the remaining 50% can be paid in units of schemes with comparable or higher risk as per the risk-o-meter.

  • Units cannot be redeemed during the lock-in period. But the AMC may provide facility to employee to borrow against the units in case of exigencies.

  • Redemption of units within lock in period will not be allowed on resignation or retirement before attaining superannuation age as defined in the AMC rules.

  • Compensation via units can be clawed back in case of violation of code of conduct, fraud, gross negligence by the key employee.

Mutual funds have been directed to publish the details of such aggregate compensation on their websites.

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