SEBI rule for fund manager compensation

Context:

The SEBI has made it mandatory that 20 percent of compensation of funder manager should be in units of schemes of mutual funds.

Background

This also includes members such as chief investment officer, chief executive officer and research head.

Details

• SEBI has also specified that the offered units in form of compensation should be locked-in for three years.

• The compensation of fund managers is usually based on their performance. SEBI has gone beyond managers to include other officials also.

Reasons for new rules

• SEBI wants fund managers to show the customers that they have confidence in the particular scheme that they are managing.

• The SEBI is said to have based its decision on the Franklin Templeton case where the company closed several debt schemes and customers suffered.

Effects on retail investors

• It will help in building accountability and also increase transparency of fund manager’s compensation.

• Since fund manager’s compensation is based on the profits gained by the mutual fund, they will be encouraged for whistle-blowing if something wrong is going on.

• It will provide psychological benefits to the customers that their fund manager has skin in the game and is working towards profits.

• There have been concerns that the good intention may not be easy to implement completely. Higher return to investors is also yet to be determined.