The Securities and Exchange Board of India (SEBI) has introduced regulatory amendments to simplify and rationalize the framework governing mandatory investments by Designated Employees of Asset Management Companies (AMCs) in mutual fund schemes they manage or influence. These changes, often referred to as the “skin in the game” requirements, aim to better align the interests of AMC employees with mutual fund unitholders. The circular is effective from April 1, 2025, and reflects updates to the SEBI (Mutual Funds) Regulations, 1996, following notifications issued on February 14 and March 4, 2025.
Key updates center around Clause 6.10 of the SEBI Master Circular (June 27, 2024), including a slab-based investment structure. Designated Employees must invest a minimum portion of their gross annual CTC (net of taxes and statutory contributions), with two calculation options:
- Option A includes ESOPs in CTC
- Option B excludes ESOPs
The investment requirement increases with higher salary slabs, ranging from 10–22.5% based on CTC levels and the chosen option.
Role-based applicability is also introduced:
- Category A employees (e.g., CEO, CIO, Fund Managers) follow slabs based strictly on CTC.
- Category B employees (e.g., COO, Sales Head) may be assigned Slab 0 or Slab 1, depending on function. If linked to investment activity, Slab 1 is mandatory.
Liquid fund managers are allowed to invest only as per Slab 1, even with higher CTC, and may invest up to 75% of the required amount in other, riskier AMC schemes.
Revised lock-in provisions allow for early redemption post-retirement or resignation, with conditions differing for superannuation and voluntary exits. Investments in close-ended schemes remain locked till maturity regardless of employment status.
Redemptions from open-ended schemes must comply with SEBI’s Insider Trading Regulations, unless the investment was made to fulfill mandatory obligations.
Governance measures include a formal review process by the Nomination and Remuneration Committee in cases of misconduct. Additionally, quarterly disclosures of aggregate employee investments in each scheme are now mandatory on stock exchange websites.
Overall, these changes enhance regulatory clarity, operational ease, and strengthen alignment between AMC decision-makers and investor outcomes.
