The proposals aimed at easing compliance, particularly for employees with lower CTCs and those in operational roles.
To address concerns about the "skin in the game" rule for designated employees of mutual funds, Sebi on Thursday proposed reducing the mandatory investment percentage, applying it based on salary brackets, and excluding non-cash components like ESOPs from the minimum investment calculation.
The proposals aimed at easing compliance, particularly for employees with lower CTCs and those in operational roles.
At present, AMC employees such as the CEO, CIO, and fund managers are required to invest 20 per cent of their annual salary and perks in the mutual funds they manage. This amount is locked in for three years.
In its consultation paper, Sebi has proposed that the "minimum mandatory investment amount may be reduced from 20 per cent and made applicable slab-wise, based on the CTC of the employees".
Employees earning below Rs 25 lakh would have no mandatory investment, while those with a CTC between Rs 25-50 lakh would invest 10 per cent, those between Rs 50 lakh-1 crore would invest 14 per cent and those with a CTC of above Rs 1 crore would invest 18 per cent, Sebi suggested.
Further, the regulator has proposed lowering mandatory investment requirements for non-investment staff such as COOs, sales heads and allowing flexibility based on each employee's role and activities within the AMC.
Under the current rule, same percentage of investment is requirement for all designated employees.
The regulator has suggested for excluding non-cash components like ESOPs from the minimum investment calculation to address challenges such as delayed compensation and high debt burdens for employees with stock options.
An industry analysis showed that, on average, AMCs pay around 7 per cent of total compensation as non-cash benefits. Only six out of 47 AMCs paid more than 20 per cent in non-cash compensation over the past three years.
Additionally, Sebi has proposed allowing early release of units upon resignation of employees subject to restrictions.
Under the current rule, units are locked even if employees leave before retirement age; if they retire, lock-ins are lifted, except for close-ended schemes.
Additionally, the regulator has proposed the disclosure of stress testing results public for all mutual fund schemes, except closed-ended schemes.
To reduce the impact on asset allocation, 75 per cent of the minimum investment amount should be allowed to be invested in schemes, managed by the AMC, with equivalent or higher risk as compared to liquid schemes. The Securities and Exchange Board of India (Sebi) has sought public comments on the proposals till November 21.