SEBI may remunerate fund managers based on the scheme performance

The Securities and Exchange Board of India (SEBI) is planning to link the fund managers’ compensation to the schemes managed by them. This has come on the wake of the recent debt mutual funds crisis.

The Mutual Fund Advisory Committee recently met SEBI chief. It was discussed to make fund managers more accountable by linking their salaries with schemes handled by them.

As per reports, a sub-committee will be constituted to frame guidelines. Asset management companies (AMCs) are already complaining about the micromanagement by the market watchdog and this proposal would add fuel to the fire.

Industry experts feel that if this is implemented, then good fund managers might not want to stay in business. Mutual funds CEOs earn Rs 7 crore to Rs 30 crore and it might be curtailed if the proposal is implemented.

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SEBI is following RBI’s steps. The Reserve Bank of India (RBI) recently framed guidelines to remunerate CEOs of public sector banks (PSBs) based on the performance of their respective banks.

Debt funds are not meeting the expectation since September 2018 as IL&FS defaulted on their commercial papers, which led to a liquidity crunch in the money market.

Defaults by DHFL and Essel and Reliance ADAG saw investors pulling out about Rs 1.5 lakh crore from the debt funds last year.

It’s a bit too harsh to blame fund managers for their investments in IL&FS and its arms as IL&FS was considered a quasi-public sector company.

However, there are instances of fund managers being accused of abruptly ending deals with corporate houses, against the interest of unitholders. Recently, the market watchdog issued show cause notices to Kotak Mutual Fund and HDFC AMC, asking for details of their investments in ESSEL group.

Both HDFC AMC and Kotak Mutual Fund couldn’t repay investors at maturity in some of their fixed maturity plans (FMPs) and requested more time for the payment.

SEBI in 2016 mandated all mutual fund houses to reveal compensation of top officials.

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