New SEBI circular for “fund manager compensation”

What is the News?

Securities and Exchange Board of India(SEBI) has issued a new circular on regulating fund manager and key personnel compensation.

About the Circular:
  • The circular says that a minimum of 20% of the salary of mutual fund managers and other key personnel in an asset management company (AMC) should be in the form of units of the mutual fund schemes they manage.
  • Key personnel here refers to the chief executive officer, chief investment officer, research head and their direct reportees.
Why this move?
  • The idea behind the move is that some mutual fund companies take excessive risks while going after returns. Thus, possibly endangering the prospects of schemes managed.
  • Hence, the SEBI wants to make sure that the interests of the fund managers are aligned to those of the unit holders of the mutual fund schemes.

Significance of this move: The expectations from this move by SEBI is to:

  • Boost the transparency of fund manager compensation and help build accountability
  • There are instances where the fund houses will not link the pay of fund managers to the performance of funds. This SEBI move will ensure the fund houses will actually link the pay of fund managers to their performance.
  • It could also encourage whistleblowing if any wrongdoing is happening with the fund houses.
  • It will also give a lot of psychological comfort to investors as the fund manager also has an investment in the schemes they manage.

Source: Indian Express


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