Sebi's skin-in-the-game norms: Our demands remain unmet, say MF executives

The Securities and Exchange Board of India (Sebi) has issued a separate communication to industry body Association of Mutual Funds in India (Amfi) to provide further clarity on the compensation norms.
 
This comes a day after Sebi tweaked the compensation circular, first issued in April, mandating fund houses to pay 20 per cent of the CTC to their key employees in the form of MF units, which will be locked-in for three years. Industry players said their demand seeking some relief has remained unmet.
 
The letter to Amfi, which has been viewed Business Standard, states debt research analysts can be issued units across debt and hybrid schemes, while equity research analysts can be issued units in equity schemes and hybrid schemes.
 
It further states that dealers placing tri-party repo for equity schemes will be allowed to issue units of debt schemes.
 
Also, one-time payments, such as bonuses and perquisites, which are not part of the monthly payslip will also be considered as a part of cost-to-company (CTC).
 
The new compensation framework, aimed at aligning the interest of MF officials with their unitholders, come into effect from October 1.
 
Several industry executives were disappointed with Sebi’s latest move, saying the situation now has become relatively complex.
 
“The concerns raised by the industry have not been answered by the regulator. We wanted some relaxation regarding the ambit of employees getting covered but this issue has not been addressed. These recent changes will make the situation more complex for the industry,-especially mid and small fund houses,” said a senior MD of the leading fund house.

The market regulator has replaced the nomenclature of “key employees” -- used in the original circular -- with “designated employees”. Previously, Sebi listed out who would be categorised as “key employees”, which the industry complained, also included staffers who had nothing to do with managing funds.
 
Officials said going ahead, the industry could face challenges around attracting and retaining talent as the take-home component for their staffers would get reduced.
 
They said the rules around the redemption of investments after the three-year lock-in period are confusing and require clarity.
 
Earlier, Sebi stated that all non-cash benefits and perks shall be accounted for in CTC for arriving at the 20 per cent figure. But the regulator later clarified that superannuation benefits and gratuity paid at the time of death/retirement shall not be included in CTC. Also, the value of interest on loan availed by the designated employees against the units from the AMC shall not be included in the CTC.
 
“Now there’s a rule-based regulatory regime that is driving such changes and the thinking is very positive. Let’s see how things change. There will surely be some complexities while adopting the circular because these are moral and ethical aspects of the regulations but on the whole, it’s a change for the better,” said Dhirendra Kumar, CEO at Value Research.