{"id":15016,"date":"2021-04-30T00:00:00","date_gmt":"2021-04-30T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/30-04-2021\/guidelines-on-compensation-of-mutual-fund-employees-sebi\/"},"modified":"2021-04-30T00:00:00","modified_gmt":"2021-04-30T00:00:00","slug":"guidelines-on-compensation-of-mutual-fund-employees-sebi","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/30-04-2021\/guidelines-on-compensation-of-mutual-fund-employees-sebi","title":{"rendered":"Guidelines On Compensation of Mutual Fund Employees: SEBI"},"content":{"rendered":"<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><\/p>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Recently, the <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Securities and Exchange Board of India (SEBI) <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">has said that a minimum 20% of the compensation of mutual fund managers<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">in an <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>asset management company (AMC)<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> should be in the form of units of the mutual fund schemes they manage.<\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">An <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>asset management company (AMC)<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks, bonds, real estate, master limited partnerships, and more.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Changes proposed by SEBI<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">A minimum of <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>20 percent of the salary<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">\/perks\/bonus\/non-cash compensation (gross annual cost-to-company) net of income tax and any statutory contributions (provident fund and national pension scheme) of the key employees of the AMCs shall be paid in the form of units of MF schemes in which they have a role and oversight.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Units allotted to key employees shall be <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>subject to clawback<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> in the event of violation of code of conduct, fraud, gross negligence by them, as determined by Sebi.\u00a0<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Upon clawback, the units shall be redeemed and the amount shall be credited to the scheme.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">A <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>clawback is a contractual provision<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> whereby money already paid to an employee must be returned to an employer or benefactor, sometimes with a penalty.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The units obtained as compensation will be subject to a <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>lock-in period of three years.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<p>\u00a0<\/p>\n<p style=\"text-align:center\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><img decoding=\"async\" src=\"https:\/\/lh6.googleusercontent.com\/c4Mpxl4wo5KZZrhDbe5OCGwlsUv2u93sWli-uBij6QQVvavdXi0VW8_O4dCPwPHQRHVavgTFbvpf-IboGx3oMa48UXsJXFnyfzJhcgrfKIHYJKX0UZidSSuZ-7vZN-O_l_CT4V3E\" style=\"height:230px; width:415px\" \/><\/span><\/span><\/span><\/p>\n<p style=\"text-align:center\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Image Courtesy: <\/span><\/span><\/span><a href=\"https:\/\/www.business-standard.com\/article\/markets\/minimum-20-key-amc-employee-compensation-to-be-in-mutual-fund-units-sebi-121042801125_1.html\" style=\"text-decoration:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#1155cc\"><u>BS<\/u><\/span><\/span><\/span><\/a><\/p>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Reasons for changes announced by SEBI<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The primary objective of the new rule is to <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>align the interest of the key employees <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">of the AMCs with the unit holders of the mutual fund schemes.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The SEBI wants fund managers to demonstrate to investors that they have confidence in the schemes they manage.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Implication of new SEBI rule on investors<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The move by SEBI will <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>boost the transparency of fund manager compensation<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> and also helps build accountability.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It ensures that fund houses actually <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>link the pay of fund managers to performance<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> and go beyond lip service.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It could<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> encourage whistleblowing<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> if wrongdoing is happening.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It will give a <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>lot of psychological comfort<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> to investors that their fund manager has skin in the game.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Arguments from Mutual Fund industry against new SEBI rule<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The common refrain from mutual fund CEOs has been that SEBI\u2019s intention is good but the <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>rules are too clunky to follow<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">The rule by SEBI, which in effect specifies percentages of investments in different schemes, could <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>conflict with the personal finance goals<\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"> of the fund managers.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It could even lead to a<\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong> flight of talent from the industry.<\/strong><\/span><\/span><\/span><\/li>\n<\/ul>\n<div>\n<table cellspacing=\"0\" style=\"border-collapse:collapse; border:none; table-layout:fixed; width:624px\">\n<tbody>\n<tr>\n<td style=\"background-color:#fff2cc; border-bottom:1px solid #000000; border-left:1px solid #000000; border-right:1px solid #000000; border-top:1px solid #000000; vertical-align:top\">\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong><u>Securities and Exchange Board of India (SEBI)<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It was established on April 12, 1992 in accordance with the provisions of the <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Securities and Exchange Board of India Act, 1992.<\/strong><\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It is a <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>statutory body <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">which is constituted as the regulator of capital markets in India under a resolution of the Government of India.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>Aim: <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">To protect the interests of investors in securities and to promote the development of, and to regulate the securities market.<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">It is the regulator of the <\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\"><strong>securities and commodity market in India <\/strong><\/span><\/span><\/span><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">owned by the Government of India<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#000000\">Source: <\/span><\/span><\/span><a href=\"https:\/\/www.business-standard.com\/article\/markets\/minimum-20-key-amc-employee-compensation-to-be-in-mutual-fund-units-sebi-121042801125_1.html\" style=\"text-decoration:none\" target=\"_blank\" rel=\"noopener\"><span style=\"font-size:11pt\"><span style=\"font-family:Arial\"><span style=\"color:#1155cc\"><u>BS<\/u><\/span><\/span><\/span><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>In News Recently, the Securities and Exchange Board of India (SEBI) has said that a minimum 20% of the compensation of mutual fund managers in an asset management company (AMC) should be in the form of units of the mutual fund schemes they manage. An asset management company (AMC) is a firm that invests pooled [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":15017,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[26,46],"class_list":["post-15016","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-gs-3","tag-indian-economy-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/5062033HOD current-affairs.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15016","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=15016"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/15016\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/15017"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=15016"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=15016"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=15016"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}