On March 21, 2025, the Securities and Exchange Board of India (SEBI) issued a pivotal circular that introduces key amendments to the SEBI (Mutual Funds) Regulations, 1996, aimed at enhancing the alignment of interests between Asset Management Companies (AMCs) and unitholders. This move is a significant step in improving governance and trust in the mutual fund industry.
The amendments to the regulations, which will come into effect on April 1, 2025, introduce revised slabs for the percentage of salary that must be invested in mutual fund schemes. These revisions have been made to further streamline the process and facilitate ease of doing business for AMCs.
Key Features of the Revised Framework
Updated Slab System for Employee Investment: The revised framework introduces a tiered system based on the gross annual cost to company (CTC) of employees. This system specifies the minimum percentage of the salary that designated employees must invest in mutual fund schemes, with variations depending on whether or not the employee receives Employee Stock Ownership Plans (ESOPs). The new slab system is as follows:
- Slab 0 (CTC below ₹25 lakhs): No mandatory investment required.
- Slab 1 (CTC ₹25 lakh to ₹50 lakh): 10% of CTC, or 12.5% if including ESOPs
- Slab 2 (CTC ₹50 lakh to ₹1 crore): 14% of CTC, or 17.5% with ESOPs.
- Slab 3 (CTC above ₹1 crore): 18% of CTC, or 22.5% with ESOPs.
What Does This Mean for AMCs?
For AMCs, this regulatory update is a critical shift towards improved governance and risk management. It compels them to ensure that their senior employees have a direct financial stake in the funds they manage, reducing the likelihood of conflicts of interest and enhancing investor confidence. The extended deadline of April 2025 also provides AMCs adequate time to adjust their policies and systems to comply with the new requirements.
Moreover, by mandating these investments, SEBI aims to further strengthen the mutual fund industry’s reputation and its ability to attract retail investors, who often rely on the credibility of fund managers when making investment decisions.
Conclusion
SEBI’s latest circular on aligning the interests of AMC employees with unitholders represents a significant step forward in ensuring the integrity of the mutual fund industry. By requiring that key employees have a personal stake in the funds they manage, SEBI is promoting a culture of accountability and transparency. AMCs must now prepare to implement these changes by April 2025, ensuring that they remain compliant with the revised regulatory framework. This move not only benefits investors but also enhances the overall trust in India’s mutual fund ecosystem.
