SEBI has issued a circular amending the regulatory framework for “Alignment of interest of the Designated Employees of the Asset Management Company (AMC) with the interest of the unitholders,” aimed at facilitating ease of business for Mutual Funds. Effective April 1, 2025, the circular modifies the Master Circular for Mutual Funds, relaxing certain provisions of the SEBI (Mutual Funds) Regulations, 1996. Key changes include revised investment slabs for employees, allowing AMCs greater flexibility in determining these based on employee roles, and specific rules for liquid fund managers. The lock-in period for investments made by employees resigning or retiring before superannuation is reduced to one year, and redemption rules for open-ended schemes are clarified. Additionally, SEBI has outlined procedures for handling violations of the Code of Conduct, fraud, or negligence by designated employees. The circular mandates quarterly disclosure of aggregate employee investments in mutual fund schemes on stock exchange websites, enhancing transparency. These amendments, issued under SEBI’s regulatory powers, seek to balance employee investment requirements with practical operational considerations.
Securities and Exchange Board of India
Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/36 Dated: 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. No. | Clause of the
Master Circular |
Revised Provision |
| 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: |
–
| Sr. No. | Clause of the Master Circular | Revised Provision | ||||
| Category | Employees | Slab applicable | ||||
| Category
A |
•
• • • • • • • |
Chief Executive Of- ficer (CEO) Chief Investment Officer (CIO) Fund Managers Investment Re- search team Dealers Chief Risk Officer (CRO) Compliance Of- ficer Members of the Investment Committee | Slab applicable based on the CTC of the employee as per Clause 6.10.1.1.a above. |
|||
| Category B | •
• • • • • |
Direct reportees to the CEO (excluding Personal Assistant / Secretary and Category A employees) Chief Information Security Officer (CISO) Chief Operation Officer (COO) Sales HeadInvestor Relation Officer(s) (IRO) Heads of depart- ments other thaninvestment and risk functions |
Slab 0 or Slab 1, irrespective of the CTC, as decided by AMC based on the activity being performed by the employee. AMCs, while deciding the suitable slabs, shall ensure that the employee who is directly or indirectly related to investment function, is con- sidered under Slab 1. |
|||
| c)
For dedicated Designated Employees associated with liquid fund schemes, Slab 1 as proposed at Clause 6.10.1.1 |
||||||
–
| Sr. No. | Clause of the Master Circular | Revised Provision |
| (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 6.10.1.5 of the Master Circular, Clause llbe inserted as: | “Provided that for Designated Employees managing liquid fund schemes, up to 75 percent of the minimum investment amount required to be invested in liquid fund schemes may be invested in schemes, managed by the AMC, with higher risk as compared to liquid fund schemes. This shall be 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. modified as: | “In case of retirement on attaining the superannuation age as
defined in the AMC service rules, the units shall be |
| D | Clause 6.10.2.3 modified as: | “Deleted” |
| E | Clause 6.10.2.4. modified as: | “Open Ended Schemes: After the expiry of the mandatory 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 redemption transactions shall also be subject to therestriction 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 |
| F | Clause 6.10.2.5.
modified as: |
“Deleted” |
| G | After Clause
6.10.7.1. of the Master Circular, Clause 6.10.7.2 |
“In the event of violation of Code of Conduct under the MF
Regulations, fraud, gross negligence by Designated |
| H | Clause 6.10.8.3.
modified as: |
“Every scheme shall disclose the ‘compensation, in
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.
5. 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