SEBI Extends Deadline for Related Party Transactions Disclosure Rules

SEBI Tweaks Mutual Fund 'Skin-in-the-Game' Rules: A Fairer Deal for Fund House Employees

In a much-anticipated move, the Securities and Exchange Board of India (SEBI) has revised its controversial “skin-in-the-game” rules for mutual fund personnel—ushering in a more balanced, practical system that recognises the ground realities faced by different tiers of employees.

Starting April 1, 2025, the blanket 20% mandatory investment rule has been replaced with a graded, CTC-based slab structure—one that better reflects both an employee’s role and their remuneration.

What Was the Problem with the Old Rule?

Let’s rewind. Back in 2021, SEBI mandated that designated employees—think CEOs, CIOs, fund managers and key operational staff—must invest 20% of their annual compensation in the very schemes they managed. The logic was sound: align employee incentives with investor outcomes.

But in practice, the rule proved rigid and, in many cases, unfair.

Not all employees have equal control over scheme performance. And for junior to mid-level staff or those in non-investment functions, tying up a significant chunk of their income in mutual fund units was more a burden than a motivator.

What’s Changing? Introducing the New Slab-Based System

In response to consistent industry feedback, SEBI has now moved to a tiered framework that varies investment requirements by annual Cost-to-Company (CTC). It also separates investment-linked roles (Category A) from those more operational in nature (Category B).

Here’s how the new slabs work:

Annual CTC (₹)	Mandatory Investment (Excl. ESOPs)	Mandatory Investment (Incl. ESOPs)
Below ₹25 lakh	Nil	Nil
₹25–50 lakh	10%	12.5%
₹50 lakh–1 crore	14%	17.5%
Above ₹1 crore	18%	22.5%

Whether ESOPs are counted toward CTC is left to the AMC’s internal policy—but the minimum mandatory investment amount will always be based on this classification.

Who Falls Under the Net? Roles That Must Comply

SEBI has introduced a clearer categorisation based on role and reporting structure:

Category A: No Room for Flexibility

These employees must comply strictly with the slab-based framework:

• CEO, CIO, fund managers
• Investment research teams, dealers
• Chief Risk Officer, Compliance Officer
• Members of the Investment Committee

Category B: Some Discretion Allowed

This group includes:

• Direct reportees to the CEO (excluding personal assistants and Category A staff)
• COO, Chief Information Security Officer, Sales Head, Investor Relations Officers, etc.

For Category B, Asset Management Companies (AMCs) can apply either the “Nil” or “10%/12.5%” slab depending on the employee’s actual function. If involved in investment or risk decision-making, the higher slab applies.

What Else is New? A Look at the Nuances

1. Liquid Fund Managers Get Some Relief

If someone manages only liquid schemes, the lowest applicable slab will apply—even if their CTC is above ₹1 crore. Additionally, up to 75% of their required investment may be allocated into higher-risk schemes, depending on the AMC’s risk policy.

2. No Penalising Non-Cash Pay

SEBI has recognised the complexity of modern compensation structures. ESOPs and other non-cash components are excluded from investment calculations—unless the AMC decides otherwise.

3. Lock-In and Exit Rules Simplified

• All investments carry a three-year lock-in.
• Upon superannuation, employees can redeem immediately—except for close-ended schemes, which stay locked until maturity.
• In case of resignation or early retirement, the lock-in drops to one year or until the original lock-in ends, whichever comes earlier.

4. Transparency Built In

To promote trust, SEBI has mandated that AMCs disclose the aggregate scheme-wise investments of all designated employees on stock exchange websites every quarter.

Why Did SEBI Loosen the Rules?

The short answer: common sense and fairness.

The old rule didn’t distinguish between a ₹25 lakh-per-year analyst and a ₹3 crore-per-year CIO. Nor did it account for an employee’s role, exposure, or risk appetite. SEBI's Ease of Doing Business (EODB) Working Group flagged these issues in a November 2024 consultation paper, recommending:

• A slab-based investment regime
• Exclusion of ESOPs from the base CTC
• AMC discretion for non-investment employees

The new framework reflects those recommendations, balancing employee well-being with investor alignment.

What This Means for the Mutual Fund Industry

More Fairness Across the Board

Lower-salaried staff and non-investment roles won’t have to stretch their personal finances just to meet compliance obligations. Meanwhile, senior staff with direct influence on performance remain fully accountable.

Operational Flexibility for Fund Houses

AMCs can now fine-tune policies to better match their internal compensation models, without violating the spirit of the rule.

Improved Transparency*.

Bottom Line: Balanced Accountability Over Blanket Enforcement

SEBI’s updated norms reflect a welcome maturity in regulation. Instead of one-size-fits-all mandates, we now have a tailored structure that promotes alignment without being punitive. The message is clear: if you're steering the fund, you should share in the ride—but let’s not ask the cabin crew to buy a ticket too.