From the Viewsroom

SEBI missing the woods for trees?

PALAK SHAH | Updated on April 29, 2021

New rule on fund managers’ pay won’t enhance accountability

On the face of it, SEBI’s decision to make it mandatory for key management staff of Mutual Funds (MFs) to get paid 20 per cent of their salary in the form of units of the MF schemes they manage seems to be aimed at ensuring that fund managers have more skin in the game. But, in reality, it won’t do much to prevent another Franklin Templeton-like fiasco.

In the long list of SEBI’s ‘trial and errors,’ this rule appears as just another case of the regulator ‘playing to the gallery.’ Regulations should bring meaningful changes that plug loopholes in the system. Will the latest SEBI regulation make fund managers more responsible or prevent frauds? Can it stop instances like the Franklin Templeton MF, where there are allegations against key employees?

Instead, SEBI’s rule will simply lead to more burden on MF investors as the fund houses will raise CTC packages to pay 20 per cent extra to key officials and put it in the expense account. Fund houses will be forced to up salaries to retain talent as not many fund managers will want to lock up a significant part of the salary for three years. At the end of the day, investors pay for all the scheme expenses and the fund house profits are net of this.

In the past, some fund managers have been found to using dubious means to earn money over and above their CTCs. Does SEBI have any concrete plan to stop this? The FT case could have been used as a learning to introduce measures to safeguard inventors money.

Stock market investors can see through the ‘cosmetic restorations’ that SEBI often makes. The regulator should have taken this opportunity to set an example with its investigations, punishments and crackdowns on dubious set in the MF industry. The forensic audit report of Franklin Templeton debt schemes can surely provide enough angles to SEBI to bring all MFs under its lens.

Published on April 29, 2021

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