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SEBI, the stock market regulator in India has come up with a new rule for the mutual fund houses. It says that the fund houses need to pay salaries to their key personnel with mutual fund units. Twenty percent of the salary of these employees should be given in fund units. SEBI’s idea behind this new rule is to make the fund houses’ employees more accountable. The key employees include CEOs, fund managers, CIOs, or Chief Investment officers of the fund houses.

Key factors about this new rule :

20% of the salary in fund units will be provided to the employees.

The lock-in period will be 3 years and they are not allowed to redeem the fund units before the lock-in period ends.

If the employee violates any rule or code of conduct in the fund house or of the industry or fraud investors, the fund units provided as salary would be taken back and the amount will be added to the scheme. 

Radhika Gupta of Edelweiss AMC, who is the MD and CEO said that the implementation of this new rule is going to be tough. She also mentioned that this rule not only applies to the senior employees but also to the junior research associates, dealers, and others. These people will get affected the most as their salary is not as high as the CEOs or the CIOs. On top of that, locking in the amount for three years is another challenge. 

Neil Parekh, the CEO and Chairman of PPFAS Mutual Fund house commented that forcing people is not a good idea at all. He said that investment must be done with trust and conviction. 

Shankar Sharma of First Global also has the same viewpoint that it would make things more complicated. If fund managers sell some units and the market fell after a few days, then investors may accuse the fund manager of not informing the investors about the market properly. He also said that making fund managers a company insider permanently is never a good idea. 

While most of the mutual fund houses’ employees reacted in a negative way to the new rule of SEBI, few talked in favor of the rule. 

Sonam Chandwani, the managing partner of KS Legal & Associates said that this rule may increase the faith of the mutual fund investors in the investment process, and in turn, it will help the stock market to boom. However, she also mentioned that this will be a tough job to implement the rule. 

Our take on this decision by SEBI is that it can somehow influence investors and increase their faith in the fund houses. However, for the employees who will be forced to take salary in MF units, it is not justifiable. Especially for the junior researchers and associates who earn around 10 lakhs-12 lakhs CTC, blocking 2 lakhs-3lakhs every year is difficult. 

Hoping for the best outcome for all; the investors, the AMC, and the employees.