Clarifications with respect to Circular dated April 28, 2021 on ‘Alignment of interest of Key Employees (‘Designated Employees’) of Asset Management Companies (AMCs) with the Unitholders of the Mutual Fund Schemes’
Based on the representations received from the Mutual Fund Industry and recommendations of Mutual Funds Advisory Committee (‘MFAC’), it has been decided to provide clarity on certain provisions and on the applicability of the aforementioned circular.
SEBI, vide Circular no. SEBI/HO/IMD/IMD-I/DOF5/P/CIR/2021/553 dated April 28, 2021, has provided that a part of the compensation of Key Employees of the AMCs shall be paid in the form of units of the scheme(s) in which they have a role or oversight.
The term “Key Employees” shall be read as “Designated Employees”.
SEBI clarified that the said circular shall be implemented in a phased manner for junior employees, i.e. 10% in the 1st year and 15% in the 2nd year of implementation of the Circular. It means the Junior Employees shall be required to invest 10% during October 01, 2021 to September 30, 2022 and 15% during October 01, 2022 to September 30, 2023.
Then, all the junior employees shall be required to invest 20% mandatorily from October 01, 2023. However, for this purpose, a designated employee of the AMC who is below the age of 35 years (excluding CEO, head of any department and Fund Managers) shall be deemed as “junior employee”. Thus, the phased implementations shall be ceased to apply from the date such employee attains the age of 35 years.
SEBI further clarified the following:
Liquid Schemes: Units of Designated Employee would get automatically redeemed after the expiry of lock-in period.
Open Ended Schemes: After the expiry of mandatory 3 years lock-in period, designated employee shall make an application to Compliance Officer for redemption of the said units. Such applications can be made only twice in a financial year. The Compliance Officer shall decide on the said application within 5 days from the date of receipt of such application.
If approved, then such approval is valid for 10 trading days. And the unexecuted portion, if any, shall not be rolled over on the expiry of the period mentioned of approval. However, a second application can be made within the year as stated in above paragraph.
The Compliance Officer shall maintain all Regulatory checks and take all the required confirmations from the Designated Employees. If the Designated Employee/the AMC is in the possession of any material information which is not yet communicated to investors then such designated employee shall not make any application for redemption to Compliance Officer or the Compliance Officer would not approve such application.
In case of request of redemption to be made by Compliance Officer then it shall be approved by “Chief Executive Officer”.
It is further clarified that the aforesaid modality shall be adopted also in case of contribution in the interval schemes, schemes having restrictions on individual investments or lump-sum investments or having temporary suspension on subscription or solution oriented schemes (retirement fund, children’s fund, etc).
Moreover, the risk value based on the risk-o-meter of the immediate preceding month shall be considered. And the AMCs and Trustees shall have a policy in place to ensure that such open ended schemes are similar to the mandated close ended schemes in terms of nature of the portfolio.