Mutual funds: SEBI looking into 'skin in the game' rule for AMC employees

The Securities and Exchange Board of India (SEBI) has put forth recommendations to adjust the mandatory investment percentage requirement for designated employees of mutual funds. The proposed changes suggest implementing the investment requirement based on salary brackets and excluding non-cash components like ESOPs from the calculation. These revisions are aimed at addressing concerns related to the “skin in the game” rule, specifically for employees with lower total compensation and those in operational roles.

Currently, key personnel such as the CEO, CIO, and fund managers of Asset Management Companies (AMCs) are mandated to invest 20% of their annual salary and benefits in the funds they oversee, with a lock-in period of three years.

The SEBI consultation paper suggests lowering the minimum mandatory investment percentage from 20% and establishing a tiered approach based on employees’ total compensation.

Sebi’s recommendations suggest that employees who earn below Rs 25 lakh will not be required to make any mandatory investments. For those with a CTC between Rs 25-50 lakh, a 10 per cent investment is recommended, while employees with a CTC between Rs 50 lakh-1 crore should invest 14 per cent. For those earning above Rs 1 crore, Sebi suggests a mandatory investment of 18 per cent.

In addition, the regulator has proposed reducing the mandatory investment requirements for non-investment staff such as COOs and sales heads. The proposal also includes allowing flexibility in investment percentages based on each employee’s specific role and responsibilities within the AMC.