The Market regulator, Securities and Exchange Board of India (SEBI) issued the Clarification on certain provisions and on applicability of the ‘skin-in-game’ rules for key mutual funds’ employees.
Based on the representations received from the Mutual Fund Industry and recommendations of Mutual Funds Advisory Committee (‘MFAC’), it has been decided to provide clarity on certain provisions and on the applicability of the Circular no. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/553 dated April 28, 2021 which provides that a part of the compensation of Key Employees of the AMCs shall be paid in the form of units of the scheme(s) in which they have a role or oversight.
It has been clarified that the term ‘Key employees’ shall be read as ‘Designated Employees’. The phrase ‘paid in the form of units’ shall be read as ‘mandatorily invested in units’. For junior employees, the provision under para 2(i) of the Alignment Circular shall be implemented in a phased manner i.e. 10% in the 1st year and 15% in the 2nd year of implementation of the Alignment circular. In other words, junior employees shall be required to invest 10% during October 01, 2021 to September 30, 2022 and 15% during October 01, 2022 to September 30, 2023.
All junior employees shall be mandatorily required to invest 20% as specified under para 2(i) of the Alignment circular with effect from October 01, 2023 onwards. However, as prescribed in the circular SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/582 dated June 25, 2021, other designated employees shall be mandatorily required to invest 20% as specified under para 2(i) of the Alignment circular with effect from October 01, 2021. The phased implementation for junior employees shall cease to apply from the date such employee attains the age of 35 years.
Redemption of units locked in as per the provisions of the Alignment circular and this circular shall be Liquid Schemes i.e.Units of Designated Employee invested in terms of the Alignment circular would get automatically redeemed on expiry of the mandatory lock-in period; and Open Ended Scheme i.e. after the expiry of the mandatory lock-in period, designated employee can redeem their units in open ended schemes twice in a financial year, with the prior approval of the Compliance Officer by following the procedure.
It is clarified that for interval schemes, schemes having restrictions on individual investments or lump-sum investments or having temporary suspensions on subscription or solution oriented schemes (retirement fund, children’s fund etc.) or schemes having lock-in period of more than 3 years, investments required under the Alignment circular shall be made in the units of any open ended schemes having risk value equivalent to or higher than the aforesaid schemes.
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