Sebi relaxes 'skin in the game' rules for MF employees, effective April 1

The Securities and Exchange Board of India (Sebi) has eased “skin-in-the-game” rules for asset management company (AMC) employees. The updated rules will replace the framework that came into force in July 2021 which required AMCs to pay 20 per cent of senior executives’ salaries in units of the schemes they manage.

 

The old system has been replaced by a new slab-based system in which investment obligations will vary by salary and designation.

 

Employees with a gross cost-to-company (CTC) of less than ₹25 lakh (slab 0) face no mandatory investment.

 

For those with CTC of ₹25-50 lakh (slab 1), 10 per cent of gross CTC or 12.5 per cent, excluding employee stock ownership plans (Esops), must be invested in overseen schemes.

 

Those with CTC in the range of ₹50 lakh to ₹1 crore (slab 2) require 14 per cent (or 17.5 per cent excluding Esops) to be invested; while those with CTC above of ₹1 crore (slab 3) must have 18 per cent (or 22.5 per cent excluding Esops) to be invested.

 

Employees are now categorised into two groups. ‘Category A’ includes chief executive officers (CEOs), chief information officers, fund managers, and key investment staff. These will follow the stab system based on their CTC.

 

Category B, comprising those who directly report to the CEO, and heads of non-investment departments, will be limited to slab 0 or slab 1, regardless of CTC. Employees managing liquid fund schemes will adhere to slab 1, even if their CTC qualifies for higher slabs.

 

The revised rules also adjust lock-in periods. For employees retiring at superannuation age, the lock-in will be waived, except for units in closed-ended schemes. 

 

For those resigning or retiring early, the lock-in will be reduced to one year from the end of employment or the completion of the existing three-year period, whichever comes first.

 

To enhance transparency, AMCs must disclose the total compensation invested in scheme units by designated employees on stock exchange websites within 15 days of each quarter’s end.  

New slabs

 

*  Employees earning below ₹25 lakh CTC are exempt from mandatory scheme investments (slab 0)

 

*  Employees with ₹25-50 lakh CTC must invest 10% (or 12.5% excluding ESOPs) in overseen schemes (slab 1)

 

*  Higher CTC brackets (₹50 lakh-1 crore and above ₹1 crore) have proportionally increased investment requirements

 

*  Employees are categorised into ‘Category A’ (investment staff) and ‘Category B’ (non-investment/CEO reports)