Please Help Sampadkiya Team in maintaining this website

इस वेबसाइट को जारी रखने में यथायोग्य मदद करें -

-Rajeev Kumar (Editor-in-chief)

Tuesday, May 4, 2021

Aligning Incentives At Mutual Funds (The Economic Times)

Quick takes, analyses and macro-level views on all contemporary economic, financial and political events.


Amidst buoyant capital markets, sustained inflows of funds from abroad, and a policy-induced low interest rates regime, it is notable that the Securities and Exchange Board of India (Sebi) has tightened norms for compensation of asset managers at mutual funds (MFs). Sebi has mandated that a minimum of 20% of the earnings of key personnel in an asset management company (AMC) should be in the form of units of MF schemes they manage, which does make perfect sense.


The idea is to align the interest of key employees of AMCs with those of the unit holders of MF schemes. The fine print in MF schemes do reiterate that returns are subject to market risks, and further that the past record cannot be a pointer to future performance. Nonetheless, Sebi, rightly, wants fund managers to demonstrate to investors that they have confidence in the very schemes they manage, with skin clearly in the game. The linkage with remuneration would also be proportional to the assets under management in which the key personnel have a role or oversight. A minimum period of three years’ lock-in is mandated for the MF units so offered, along with provision for claw back for non-compliance and violation of ‘Code of Conduct, fraud and gross negligence.’


The assets under management in MF schemes are now over ₹32 lakh crore, and we need transparency on MF returns. Sebi has also, sensibly, revamped the format for reporting MF results. Its latest move may have been informed by the fiasco at six debt funds of Franklin Templeton last March. Reportedly, some employees of the MF are known to have coolly redeemed their holdings just before the schemes’ closure. ‘Market’ based compensation surely needs to be in place for credit decisions of bankers, as well, besides at MFs.

Courtesy - The Economic Times.

Share:

Please Help Sampadkiya Team in maintaining this website

इस वेबसाइट को जारी रखने में यथायोग्य मदद करें -

-Rajeev Kumar (Editor-in-chief)

0 comments:

Post a Comment

Copyright © संपादकीय : Editorials- For IAS, PCS, Banking, Railway, SSC and Other Exams | Powered by Blogger Design by ronangelo | Blogger Theme by NewBloggerThemes.com