Employee stake in mutual fund schemes to raise accountability

From July 1, a minimum of 20 per cent of the take home salary of the key employees of the asset management companies (AMCs) will have to be paid in the form of units of mutual fund schemes in which they have a role/ oversight.

This has been done to align the interest of the key employees of the AMCs with the unitholders of the mutual fund schemes, a circular issued by the Securities and Exchange Board of India on Wednesday said.

As per the circular, key employees of the AMCs include chief executive officer, chief investment officer, chief risk officer, chief information security officer, chief operation officer, fund managers, compliance officer, sales head, investor relation officers, heads of other departments, dealers of the AMC, fund management team and research team.

"The provisions of this circular shall not be applicable to key employees having role/ oversight only over ETFs, Index Funds, Overnight Funds and existing close ended schemes," the Sebi said.

Most mutual funds Financial Chronicle spoke to said it was too early to comment, as they awaited the detailed guidelines from the regulator.

However, a new generation mutual fund house is already adhering to a similar practice. "Ideally, in the fund management profession, the only way to instill a sense of accountability is to ensure that the fund management team is investing their own monies along with those of the clients'," says PPFAS Mutual Fund.

Key employees of PPFAS MF held 4.865 crore units worth Rs 203.74 crore as on April 28, 2021.

"Having our own skin in the game demonstrates the willingness to link our financial well-being with yours. This also places an implicit onus on us to make optimum use of our time and abilities in order to enhance the scheme's performance and eschew the reckless behaviour that fund managers are sometimes accused of," PPFAS MF says.

The Sebi move was also welcomed by a top private life insurance official, as he said, "Insurance regulators should also make it compulsory for all top executives of any life insurance company to compulsorily buy their traditional products to the extent of 20 per cent of their CTC.”