SEBI skin in the game mandate: Understanding the impact on monthly salaries of MF executives

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SEBI’s ‘skin in the game’ circular has caused quite a stir in the AMC space. It has now emerged that the move may result in some tax complications and impact on in-hand salary of key executives.

After the Franklin Templeton episode, this move is being viewed as an effort to safeguard interests of investors.

The list of key employees includes CEO, Chief Investment Officer (CIO), Chief Operations Officer (COO), Chief Risk Officer (CRO), Chief Information Security Officer (CISO), Compliance Officer, Sales Head, Investor Relations Officer, in addition to the fund manager. Department heads and AMC dealers will also come under this new mandate. Such officers who report to the direct CEO or are in the fund management team or research team will also be there.

A senior official of an AMC on condition of anonymity said that the intention of this step is to increase transparency but some employees who may not have much to do with this mandate will get less in-hand salary.

Will take-home salary reduce?

According to Pankaj Mathpal, Founder of Optima Money Managers, these units will be treated as part of salary and will be taxed according to the tax slab of the employee.

“Think of it as having bought MF out of 20% of your salary. Annually, he will pay tax on his entire salary and MF will have to pay long-term capital gains tax after three years. If they will be connected to the ELSS fund that tells the tax, then they will be able to claim income tax exemption under 80C. But, with this step, at least 20 percent of the salary of many employees will be locked for three years,” he said.

Mohit Gang of Moneyfront says that even though this is a step in the right direction, could there not be any other way to implement it? This should only apply to employees who are investing. But for a person whose salary is not fulfilled only for school fees or EMI of home loan, it will prove to be a pressure or compulsion investment. Similarly, small cap fund managers should not be forced to invest in small cap funds and liquid fund managers should not be forced to invest only in liquid. How can the regulator force anyone to invest beyond their personal risk profile. When advocating for investors, this matter should also be considered.

According to sources, some AMCs are asking their employees for their views on this issue, which they will present before SEBI.