Salary Shocker for Mutual Fund Employees?
A new law is on the table. One that can be a pain for the mutual fund employees or a gain for the investors.
SEBI has taken the 50 (needs)-30 (wants)-20 (save) rule of investment way too seriously.
The key employees at an Asset Management Company (the mutual fund guys) will now have to invest 20% of their salary in the schemes that they have worked on. (You can read the circular here).
We know what you are thinking…
Great move! The mutual fund guys should have some skin in the game.
After all, they are the ones who curate these schemes where we, the public, put our faith and hard-earned money in. If they will have to invest in their own schemes, it will automatically force them to be more diligent.
But, as per Radhika Gupta (MD & CEO of Edelweiss Mutual Fund), the senior management of pretty much all AMCs invest in their own schemes. They already HAVE skin in the game.
Then, who will this circular really impact?
Well, SEBI has defined pretty much everyone as a key employee. Even head of HR at an AMC, who isn't an expert on company's fund offerings, will be forced to invest 1/5th of their salary. It impacts the junior employees as well, for whom 20% of their salary is a reasonable chunk. SEBI has excluded only those employees who work on only those funds that require lesser management (such as Index Funds which replicate the stock market indices like Sensex and so, do not require expertise for management).
And, their woes don’t end here. The employees don't even get to pick which fund they want to invest in!
The top rung employees will have to invest in ALL the funds (as they oversee all of them). And, the proportion of investment has to be based on company's risk appetite.
And, for those employees who are part of only one fund, they will have to invest at least 50% of their investment quota in that fund. For the remaining 50%, they have the option to invest in other funds carrying an equal or higher risk only.
Not much choice, right?
Haah. Wait for the final nail to the coffin.
The amount invested in these funds cannot be withdrawn before 3 years!
This reduces the in-hand salary of the employee. It takes away the investment decision from their hands. Their risk-appetite is their problem, not SEBI’s problem.
Now, this will either demotivate people to work in AMCs or the the AMCs will have to give a pay-raise, which will increase their expenses.
Yes. Industry khatre mai hai and it is knocking SEBI’s doors to request an ease in the laws.
A request is being raised to narrow down the coverage of key employees. Those employees who earn a small amount or those who have nothing to do with fund management should not be made part of this law. Another request is being made to give more flexibility of investment to the employees.
However, there is a fraction of the industry that thinks differently. They think if the personal risk appetite of the fund manager is lower than the fund he is in charge of, is he really the right man for the job?
What are your views? Comment below!
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On what basis are the key employees determined?