SEBI issued guidelines to mutual fund companies that 20% salary of fund managers will be invested in their own mutual fund schemes.
SEBI’s rule for Mutual Funds
A one-fifth portion of the salary of officers in mutual fund companies will be determined by the performance of the schemes under them. Market regulator SEBI has issued a guideline for this. Under this, SEBI has issued a circular linking the interests of Asset Management Companies (AMC) i.e. the principal officers of mutual funds and the unitholders of mutual fund schemes.
Impact on investors
On this decision of SEBI, experts associated with mutual funds say that this will definitely increase investor confidence, but some practical difficulties will also be revealed. Investors join equity funds for higher returns but this will force the fund managers to take less risk. In market fluctuations, fund managers try to make a profit for investors by taking more risk, but they will now hesitate to do so which will affect the returns.
Sebi said in a circular, “The incentive paid to the principal officers of AMC will be paid as a minimum 20 percent of salary / allowances / bonus / non-cash compensation (gross annual CTC) as units of mutual fund schemes. Compensation as a unit will be paid as a proportion of the assets under management of the plans (AUM). For this, exchange traded funds (ETFs), index funds, ‘overnight funds’ and existing fixed term schemes will not be included.
Investors’ trust will increase further: Expert
SBI Mutual Fund Executive Director DP Singh said that this will increase the confidence of retail investors on mutual funds. However, people and skills associated with AMC will be demoralized. He says that mutual funds are one of the most transparent sectors and this decision needs further clarification.
Ajit Menon, CEO of PGIM India Mutual Fund, says that this is a right step in view of increasing investor confidence in mutual funds. However, this would make it difficult to add experts and new talent to AMC.
At the same time, he says that not all people in AMC are involved with the management of the unit, but this decision will also affect their salaries. It is also said that in market fluctuations, fund managers try to make a profit for investors by taking more risk, but they will now hesitate to do so which will affect the returns.
