SEBI’s skin-in-the-game rule will boost confidence of investors: Feroze Azeez

With markets regulator SEBI mandating 20% salary of key AMC employees to be paid out in mutual fund units, Feroze Azeez, Deputy CEO, Anand Rathi Wealth Management, shares insights on how the move will boost investor’s confidence and align the interests of AMC employees with the unitholders.

Edited Excerpts:

Q: What has led SEBI to amend the compensation rule?

Azeez: It is not a surprise move as the regulator was already mulling on steps to increase skin-in-the-game
to improve the confidence of investors after some negative experiences. Franklin Templeton’s sudden
winding up of six schemes last year has been a catalyst for the regulator to think in this direction. I’m very happy with the regulator’s move as this will have a long-term positive impact. Skin-In-The-Game brings in confidence which in turn brings in penetration which ultimately translates into return for the investors as from FDs they move into more tax efficient products.

Q. Will this improve investors’ conviction on investing in mutual funds?

Azeez: Investors derive comfort when their advisors and fund managers do what is actually being said to them. Investors feel calm and comforted when they know that their managers share their portfolios. The move definitely will ease an investor’s anxieties.

Q. Do you think this move will make fund managers more accountable and will it lead to a better performance?

Azeez: Most fund managers already have a large part of their compensation linked to performance. Most of their bonuses are linked to how much alpha they generate. Therefore, it may not necessarily be seen as an incentive to enhance performance instead improve governance.

Q. Will this step help prevent events Franklin Templeton Incidences?

Azeez: Well, it cannot be a result of one step but a series of steps by the regulator, including this latest move can help avoid such incidences. This move will help reduce the probability of an episode like Franklin.