Mutual funds to attract fresh talent with toned-down skin-in-the-game norms

The mutual fund industry can heave a sigh of relief as it will be able to attract better talent with the capital market regulator SEBI easing the skin-in-the-game regulations for key managerial persons of the industry.

The new eased skin-in-the-game regulations, which come into force on Tuesday, comes when new players are entering the MF business and the industry itself is launching Special Investment Funds targeted at investors who can take high risk for higher returns with minimum investment of ₹10 lakh.

A mutual fund registered under SEBI regulations can establish an SIF if it has been in business for at least three years, with average assets under management of ₹10,000 crore.

In an alternate route, the asset management company must appoint a Chief Investment Officer with at least 10 years of experience managing ₹5,000 crore, and a fund manager with a minimum of three years of experience managing ₹500 crore.

The mutual fund industry has found it difficult to find talent as designated employees were required to get 20 per cent of their remuneration in the units of their mutual funds, to ensure that their interests are aligned with the unitholders. Moreover, the investment was locked-in for 3 years.

Also read: SEBI plans to ease skin in the game norms for MFs

Eased regulations

However, SEBI eased this rules by exempting MF employees drawing below Rs 25 lakh CTC from skin-in-the-game. For those drawing more, they will need to take either 10-18 per cent of their CTC in MF units or 12.5-22.5 per cent of their CTC in the units depending on what their asset management company chooses.

In a bid to improve transparency and enhance accountability among AMCs, SEBI has proposed AMCs should deploy funds raised through New Fund Offers in 30 days from the unit allotment date. If it misses the deadline, it can request a one-time 30-day extension, but only with the approval of its Investment Committee, which must review and justify the delay.

Sunil Subramaniam, Director of independent think-tank Sense and Simplicity, said the easing of skin-in-the-game for key managerial personnel will help the mutual fund industry find fresh talent, particularly when competition is intensifying and AMCs are launching high-risk-high-return Special Investment Funds.

The 30-day cap for deploying NFO proceeds will ensure that new fund launches are not just an asset gather exercise and make AMCs more responsible while raising funds, as they have to deploy them within the prescribed time limit, he added.

MF investors can choose their nominee using the DigiLocker app. If the investor passes away, these nominees will have view-only access to the account. This ensures that the family or legal heirs can easily find important financial information without any problem.