Facilitating ease of doing business relating to the framework on “Alignment of interest of the Designated Employees of the Asset Management Company (AMC) with the interest of the unitholders”

CIRCULAR SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/36 March 21, 2025 To All, Mutual Funds (MFs)/ Asset Management Companies (AMCs)/ Trustee Companies/ Board of Trustees of Mutual Funds/ Association of Mutual Funds in India (AMFI)/ Registrars to an Issue and Share Transfer Agent (RTAs) Madam/ Sir, Sub: Facilitating ease of doing business relating to the framework on “Alignment of interest of the Designated Employees of the Asset Management Company (AMC) with the interest of the unitholders” 1. With an objective to facilitate ease of doing business for Mutual Funds, amendments to SEBI (Mutual Funds) Regulations, 1996 (‘MF Regulations’) were carried out to relax the regulatory framework relating to ‘Alignment of interest of the Designated Employees of the AMCs with the interest of the unitholders’ (hereinafter referred to as ‘skin in the game requirements’). The amendments have been notified vide notification dated February 14, 2025 (link to the Gazette notification) and March 04, 2025 (link to the Gazette notification). The said amendments shall be applicable from April 01, 2025. 2. Accordingly, in terms of Regulation 25 (16B) of MF Regulations, the Master Circular for Mutual Funds dated June 27, 2024 (‘Master Circular’) has been modified as under: Sr. Clause of the Revised Provision No. Master Circular A Clause 6.10.1.1 “A minimum slab wise percentage of the salary/ perks/ modified as: bonus/ non-cash compensation (gross annual CTC) net of income tax and any statutory contributions (i.e. PF and NPS) of the Designated Employees of the AMCs shall be mandatorily invested in units of Mutual Fund schemes in which they have a role/oversight. The manner for such investments shall be as under: Page 1 of 6Sr. Clause of the Revised Provision No. Master Circular a) The slabs based on gross annual CTC shall be as under: Slabs based on Minimum percent- Minimum percent- gross annual age required to be age required to be CTC invested with inclu- invested with exclu- sion of Employee sion of ESOPs Stock Ownership Plan (ESOPs), if any Option Option A Option B Slab 0 Nil Nil (Gross CTC be- low 25 lakhs) Slab 1 10% of gross an- 12.5% of gross an- (Gross CTC nual CTC net of in- nual CTC net of in- above 25 lakhs come tax and any come tax, any stat- but below 50 statutory contribu- utory contributions lakhs) tions. and ESOPs. Slab 2 14% of gross an- 17.5% of gross an- Gross CTC nual CTC net of in- nual CTC net of in- above 50 lakhs come tax and any come tax, any stat- but less than 1 statutory contribu- utory contributions crore tions. and ESOPs. Slab 3 (Gross 18% gross annual 22.5% of gross an- CTC above 1 CTC net of income nual CTC net of in- crore) tax and any statu- come tax, any stat- tory contributions utory contributions and ESOPs. AMC shall have the option to adopt Option A or Option B for its Designated Employees. Designated Employee with no ESOP component as part of their CTC shall be covered under Option A. b) The slabs applicable to a Designated Employee at point (a) above shall also be decided based on the role of the Designated Employee in the AMC in the following manner: Page 2 of 6Sr. Clause of the Revised Provision No. Master Circular Category Employees Slab applicable Category  Chief Executive Of- Slab applicable A ficer (CEO) based on the CTC  Chief Investment of the employee Officer (CIO) as per Clause  Fund Managers 6.10.1.1.a above.  Investment Re- search team  Dealers  Chief Risk Officer (CRO)  Compliance Of- ficer  Members of the In- vestment Commit- tee Category B  Direct reportees to Slab 0 or Slab 1, the CEO (excluding irrespective of the Personal Assistant CTC, as decided / Secretary and by AMC based on Category A em- the activity being ployees) performed by the  Chief Information employee. AMCs, Security Officer while deciding (CISO) the suitable slabs,  Chief Operation shall ensure that Officer (COO) the employee  Sales Head who is directly or  Investor Relation indirectly related to investment Officer(s) (IRO) function, is con-  Heads of depart- sidered under ments other than Slab 1. investment and risk functions c) For dedicated Designated Employees associated with liquid fund schemes, Slab 1 as proposed at Clause 6.10.1.1 Page 3 of 6Sr. Clause of the Revised Provision No. Master Circular (a) above shall be considered even if the Designated Employee falls in either Slab 2 or Slab 3 based on the CTC. For Designated Employees associated with other schemes in addition to liquid fund scheme, Slabs based on the CTC of the employee shall be applicable.” B After Clause “Provided that for Designated Employees managing liquid 6.10.1.5 of the fund schemes, up to 75 percent of the minimum investment Master Circular, amount required to be invested in liquid fund schemes may Clause 6.10.1.5 be invested in schemes, managed by the AMC, with higher (A) shall be risk as compared to liquid fund schemes. This shall be inserted as: applicable for Designated Employees associated with only liquid fund scheme and also for Designated Employees associated with other schemes in addition to liquid fund scheme, only with respect to the quantum required to be invested in liquid fund schemes. For this purpose the risk value based on the risk-o-meter of the immediate preceding month shall be considered.” C Clause 6.10.2.2. “In case of retirement on attaining the superannuation age as modified as: defined in the AMC service rules, the units shall be released from the lock-in and the Designated Employee shall be free to redeem the units, except for the units in close ended schemes where the units shall remain locked in till the tenure of the scheme is over. However, on resignation or retirement of the Designated Employee from the AMC before attaining the age of superannuation as defined in the AMC service rules, the lock-in period, for the investments made under Clause 6.10 of the Master Circular, shall be reduced to 1 year from the end of the employment or completion date of 3 year lock-in period, whichever is earlier, except for the units in close ended schemes where the units shall remain locked in till the tenure of the scheme is over. D Clause 6.10.2.3 “Deleted” modified as: E Clause 6.10.2.4. “Open Ended Schemes: After the expiry of the mandatory modified as: lock-in period, Designated Employee can redeem their units in open ended schemes, subject to compliance with SEBI (Prohibition of Insider Trading) Regulations, 2015. Such Page 4 of 6Sr. Clause of the Revised Provision No. Master Circular redemption transactions shall also be subject to the restriction on trade in closure period and the requirement of pre-clearance from compliance officer when closure period is not applicable, in terms of Clause 6 of Schedule B1 of SEBI (Prohibition of Insider Trading) Regulations, 2015. For mandatory subscription/investment in the units of mutual funds under Clause 6.10 of the Master Circular, the requirements specified under Clause 6 of Schedule B1 of SEBI (Prohibition of Insider Trading) Regulations, 2015 shall not be applicable.” F Clause 6.10.2.5. “Deleted” modified as: G After Clause “In the event of violation of Code of Conduct under the MF 6.10.7.1. of the Regulations, fraud, gross negligence by Designated Master Circular, Employees, the Nomination and Remuneration Committee of Clause 6.10.7.2 AMC shall undertake the preliminary examination and shall be inserted provide recommendations to SEBI for consideration, after as: approval of the Trustees. For AMCs where the Nomination and Remuneration Committee has not been constituted, an equivalent body under the Board of AMC shall undertake the preliminary examination and provide recommendations to SEBI for consideration, after approval of the Trustees.” H Clause 6.10.8.3. “Every scheme shall disclose the ‘compensation, in modified as: aggregate, mandatorily invested in units for the Designated Employees’, under the provisions of this Master Circular, on the website of Stock Exchanges. The disclosure shall be at quarterly aggregate level showing the total investment across all relevant employees in a specific scheme. The disclosure shall be made within 15 calendar days from the end of each quarter.” 3. This circular shall come into effect from April 1, 2025. 4. This circular is issued in exercise of the powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation 25 (16B) and 77 of MF Regulations, to protect the interest of investors in securities and to promote the development of, and to regulate the securities market. Page 5 of 65. This circular is available at www.sebi.gov.in under the link “Legal ->Circulars”. Yours faithfully, Peter Mardi Deputy General Manager +91-22-26449233 peterm@sebi.gov.in Page 6 of 6