Market regulator SEBI has eased the ‘skin-in-the-game’ norm for mutual fund employees by allowing those below 35 years to comply with the rules over the next two years.

Junior members of fund management teams can invest 10 per cent of their salary in the schemes they manage between October 1, 2021 and September 30, 2022 and 15 per cent from October 1, 2022 to September 30, 2023. After October 2023, they will need to invest 20 per cent of their income.

However, other designated employees, who are older than 35, have to invest from October 20 per cent of their annual salary in the scheme they manage.

In April, SEBI had mandated that a minimum of 20 per cent of the salary of key employees should be paid in the form of units of the mutual fund schemes in which they have a role or oversight, with the allotments locked for three years.

While the new norm is intended to align employees’ interest with that of unitholders, industry players had raised concerns over rising wage costs. The industry also sought more time to implement it, and the regulator had postponed the implementation to October instead of the earlier notified deadline of July 1. Now, SEBI has also allowed fund managers to set-off their current investments against the mandatory investment to be made under the new regulation.

Investment in MF units have to be made on the salary day and the previous month’s closing AUM will be taken for apportioning the investment across eligible schemes. All non-cash benefits and perks, excluding superannuation benefits and gratuity, will be added to the salary for calculating the 20 per cent investment level, SEBI said.

Designated employees can set off their existing investments against the fresh investments as required in the same schemes but the three-year lock-in will be applicable from the day of set-off.

After the expiry of lock-in period, employees can roll their investment for further commitment and the new investment will be locked for three years.

Implementation issues

No mutual fund offered a comment, but a senior MF executive said the new norm will make life difficult not only for MF employees but also for AMCs as it will make compliance cumbersome.

“Since the value of the compensation will be market-linked and changing on a daily basis, it is not clear how it will be used to issue the units and calculate the monthly tax outgo of these executives. If a fund manager is handling several schemes, it becomes even tougher to compute the percentage of salary to be given in units and the tax on them,” he said.

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