MFs get breathing space from SEBI's skin in the game rule; will it impact you?

Markets regulator SEBI has postponed implementation of the alignment of interest of key employees of Asset Management Companies (AMCs) with the unitholders of the mutual fund schemes to October 2021, instead of the earlier notified deadline of July 1, 2021.

The deferral, in effect, provides mutual fund companies enough time to re-align pay systems to guarantee that employees are able to comply with the standards while ensuring that the abrupt change in regulation does not have a negative impact on their lives and lifestyles.

“The deferment will help AMCs effectively implement policies in line with the guidelines,” said Anand Dalmia, co-founder, Fisdom.

These regulations would require the fund houses to pay a portion of the fund managers’ salary through the distribution of units in the funds managed by the fund manager. This would need a significant adjustment in the salary structure and pay mix of senior management personnel in the mutual funds.

“This norm may probably help in enhancing the commitment of fund houses to greater diligence on investments portfolios, though it does not in any way signify that the same was totally missing earlier. There is also a clawback condition in the regulations which makes it a more stringent system of controls,” said Joseph Thomas, Head of Research, Emkay Wealth Management.

Will this impact investors?

The deferment is of hardly a couple of months and while it helps the AMCs implement more effectively, there is no significant impact to be borne by investors because of the deferment.

“For investors, there is not much of an impact due to this postponement as this is more of a nice to have feature and most good funds are process-oriented, have good risk management and there is complete transparency with regards to portfolios and performance reporting,” pointed out Arun Kumar, Head of Research, FundsIndia.

Earlier there were few areas where there was a lack of clarity in terms of the actual implementation. Now the fund houses along with SEBI can get more time to iron out the concerns and implement this. The primary intent is to align the portfolio manager’s interest and investor’s interest.

“The jury is out on whether this is fair towards asset managers, all impacted classes of employees and the larger active fund management segment but the spirit is to induce investor confidence and align interests furthermore,” added Dalmia.