In a significant regulatory update, the Securities and Exchange Board of India (SEBI) has modified its investment guidelines for employees of Asset Management Companies (AMCs). The new circular, which takes effect from 1 April 2025, represents a major overhaul of the previous framework where designated AMC employees were required to invest at least 20% of their gross salary in their own mutual fund schemes.

 

Under the revised guidelines, SEBI has introduced a tiered structure that correlates investment requirements with income levels. Designated AMC employees earning a gross annual income exceeding Rs. 25 lakh must now invest at least 10% of their gross annual income in their company's mutual fund schemes. This calculation excludes income taxes and statutory contributions such as National Pension System (NPS) and Provident Fund (PF). The revised policy makes a notable distinction for employees with Employee Stock Ownership Plans (ESOPs), requiring those without ESOP components to invest a higher percentage (12.5%) of their net income.

 

The new framework establishes a comprehensive slab-based system that increases investment requirements with higher income levels. While employees with gross Cost to Company (CTC) below Rs25 lakh are exempt from mandatory investments, those in higher brackets face progressively steeper requirements. For instance, employees earning between Rs50 lakh and Rs1 crore with ESOPs must invest 14% of their adjusted gross income, while those without ESOPs need to commit 17.5%. The highest bracket, covering employees with CTC exceeding Rs1 crore, mandates investments of 18% (with ESOPs) or 22.5% (without ESOPs).

 

SEBI also categorized employees based on their roles and responsibilities. Category A employees, including key positions such as CEO, CIO, fund managers, and members of investment committees, are subject to slabs determined by their CTC. Meanwhile, Category B employees, comprising direct CEO reportees and department heads excluding investment and risk functions, will typically fall under slabs 0 or 1, as determined by their respective AMCs based on individual activities.

 

Special provisions apply to employees associated exclusively with liquid schemes, who will uniformly be placed in slab 1 regardless of their CTC. These employees, along with those managing multiple schemes including liquid funds, can invest up to 75% of their mandated amount in other AMC schemes with higher risk profiles, as determined by the previous month's risk-o-meter readings.

 

The circular introduces nuanced rules regarding redemption of invested units. Upon reaching retirement or superannuation age as defined by AMC policies, employees' units will be released from lock-in and become available for redemption. For those who resign or retire before superannuation age, the lock-in period will be reduced to either one year from employment termination or the completion of the standard three-year lock-in period, whichever comes first. However, this provision excludes units in close-ended schemes, and the previously available option for immediate liquidation of units invested in liquid schemes has been eliminated.

 

All redemptions must comply with SEBI's insider trading regulations. In cases involving fraud or code violations, the AMC's Nomination and Remuneration Committee or an equivalent body will submit recommendations to SEBI for consideration, following trustee approval.

 

The circular also eases disclosure requirements, allowing AMCs to report aggregate employee investments in their schemes on stock exchange websites quarterly rather than monthly. This comprehensive revision reflects SEBI's continued commitment to aligning AMC employee interests with those of mutual fund investors while providing a more balanced and structured approach to the "skin in the game" philosophy.