Fund houses to press for modifications to Sebi compensation circular

Mutual fund houses plan to approach market regulator Sebi through their industry body Association of Mutual Funds in India (Amfi) seeking amendments to the compensation circular issued on Wednesday.

Among the most important tweak sought by the industry will be to reduce the ambit of ‘key employees’.

Sebi’s current definition is quite widespread and almost covers the entire staff of an asset management company (AMC). Some of them also include personnel who have nothing to do with fund management or investment decisions.

“The circular also covers employees like the head of human resource and dealing staff, among others. These people have nothing to do with the investment performance,” said Radhika Gupta MD and CEO Edelweiss AMC.

Other top industry officials said they will request Sebi to restrict the circular to staffers directly responsible for investment decisions and fund performance. They said asking employees other than the fund management team to mandatorily invest a fifth of their salary goes against the principle of natural justice.

Another change sought by the industry is to allow some discretion to fund managers who manage high-risk schemes such as the small-cap, mid-cap or thematic schemes.    

Samir Arora, founder and fund manager at Helios Capital, however, has a different take on this issue.

“An equity fund manager better be excited with the funds he/she manages. This is not just a job that you are doing without believing in the thesis. If his risk appetite is lower or higher, he is not the right person to manage the fund,” he tweeted.

Also, the industry will seek clarity if the 'diversification' clause would enable equity fund managers to invest in the debt category and vice versa.

“I think intent is good but perhaps some of the modalities could be fine tuned. There could be some flexibility of investing not necessarily in your own scheme but choosing other schemes of the fund house. It is not always the case that fund you are managing which matches your investment profile,” says Kaustubh Belapurkar, Director – Manager Research, Morningstar India. 

In the circular, Sebi has said “in case of dedicated fund managers managing only a single scheme or category, 50 per cent of the compensation shall be by way of units of the scheme/category managed by the fund manager and the remaining 50 per cent can, if they so desire, be by way of units of those schemes whose risk value as per the risk-o-meter is equivalent or higher than the scheme managed by the fund manager.”

Industry players also plan to take up the issue of employees whose salary is below the median levels and who could be adversely impacted if they have to park a fifth of their salary in MF schemes.

“Several employees such as dealers or junior research get salaries in the range of Rs 10-15 lakh per annum. Many have several loans and other outgoes. It will be difficult for them to set aside 20 per cent of their salary every month. We will ask Sebi to provide more time in such cases so that they get time to realign,”said another industry official.

Sebi has said the new rules on compensation will come into effect from July 1.

Who are ‘Key Employees’?

• Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Risk Officer (CRO), Chief Information Security Officer, Chief Operation Officer (COO), Fund Managers, Compliance Officer, Sales Head, Investor Relation Officers, heads of other departments, Dealers
• Direct reportees to the CEO (excluding Personal Assistant/Secretary);
• Fund Management Team and Research team
• Other employees as identified and included by AMCs and Trustees

Source: Sebi circular