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Skin in the game: A policy reform worth revisiting


Skin in the game (SITG) investing, mandated by Securities and Exchange Board of India (Sebi) for designated employees (DEs)—C-class executives, fund managers, compliance officers, etc.—of asset management companies (AMCs), completed its first year in September 2022. This move entailed these employees to mandatorily invest 20% of their take-home salary in units of mutual fund (MF) schemes that are under their direct purview or management. These units are locked in for a period of three years and subject to claw-back in case of violation of the model code of conduct prescribed by AMCs and Amfi (Association of mutual funds in India).

This policy prescription was, perhaps, the outcome of the infamous debacle at a mutual fund house wherein fund managers resorted to redemption in mutual fund schemes ahead of a public announcement about their closure. This was the second-level stringency prescribed by the regulator; first being the investment mandate for AMCs to invest in mutual fund schemes (as a percentage of assets under management, or AUM, based on the risk value of each scheme reflected through its risk-o-meter).

SITG investing aims at strengthening the fiduciary duty of AMCs managing assets worth 40 trillion, curbing the ‘risk-taking move’ of fund managers at the cost of investors, and fostering alignment of fund manager’s interest with that of the investors.

Initially, there was some resistance to this policy reform. SITG was considered to be an intrusive diktat of the regulator as employees had to compromise their personal obligations such as loans and family expenses to comply. This policy limited the investment choice of DEs as 20% of their take home salary was to be compulsory invested into their own MF house schemes, that too with a 3-year lock-in period. This was construed to be an element of over-regulation.


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Globally, the ‘SITG’ approach has been followed by hedge funds and investment management companies. Even the US SEC mandates similar kind of disclosures by companies on the basis of which investors can take informed decisions.

To put this in perspective in the Indian context, we analysed the SITG investments made by DEs of 15 MF houses. Our analysis shows that the salary earned by DEs is not comparable across AMCs and the size of AUM (open-ended schemes) does not necessarily commensurate with the salaries earned by DEs. For example, the top 3 AMCs with an AUM of 4 trillion have different SITG investments by DEs (see table).

One may see the stark difference in the SITG investing done by DEs of the above-mentioned AMCs despite their having the same AUM size. This is on account of disparity in remuneration of DEs at various AMCs. Therefore, there is a need to revisit the SITG investing rule—it should be based on the income earned by DEs instead of a ‘one approach fits all’ policy.

From an investor’s perspective, SITG investing is a ‘must-see’ data for taking informed decisions. We suggest this as an additional metric to be juxtaposed with the AUMs of the schemes. Furthermore, to strike a balance between the interests of investors and DEs, perhaps the regulator can prescribe a slab-based approach (5%, 10% or 20%) for SITG investing, based on the income levels of DEs. The requirement of 3-year lock–in may also be relaxed in case of any emergencies. Even the insurance regulator Irdai can prescribe SITG investing for thosemanagingULIPs.

Kuldeep Thareja, Mitu Bhardwaj & Rasmeet Kohli work with the National Institute of Securities Markets. Views are personal.

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