Running is known to be a good exercise, but over doing it may injure your knees. Similarly, adding spices to your diet can be beneficial, however eating spicy food a lot may cause harm to the digestive system. In day-to-day life, moderation is the key to almost everything we do. The Securities and Exchange Board of India (SEBI) seems to have forgotten this dogma.

In the zeal of protecting investors’ interest, the SEBI, perhaps, has been overregulating mutual funds. Their directive on the disclosure of fund managers’ salaries and others executives drawing over Rs 60 lakh a year hasn’t gone down well with Asset Management Companies (AMCs). The actions of fund houses are loud enough to conclude so.

Let’s look at the ways AMCs have chosen to comply with these new disclosure regulations
A few mutual fund houses such as Quantum and Peerless appear to be inapprehensive about disclosing the pay packages of their key executives in public domain. Whereas a few fund houses such as HDFC Mutual Fund, ICICI Mutual Fund, and Reliance Mutual Fund have used unique tricks for restricting the flow of such sensitive information only to their investors. Going a step ahead, DSP BlackRock Mutual Fund has placed a barrier of a legal undertaking that may add as a deterrent to those seeking information on salaries of the top brass. As revealed by The Indian Express dated May 04, 2016, employee cost averages to 56% for top 5 mutual funds compared on their asset base. The Association of Mutual Funds in India (AMFI) tried convincing the regulator, but its efforts were in vain as the SEBI remained resolute on its previous stand.

What’s the trouble with disclosing salaries?
Mutual fund houses believe that such disclosures may negatively affect the competitiveness of the industry and could give rise to disputes between investors and fund houses. Some legal experts believe that although the SEBI wants to impose stricter disclosure norms to introduce higher transparency, it has failed to clarify what objective the salary disclosures would achieve. The AMCs pay fund managers at a mutual fund, and charge a fee.

In a knowledge-driven business, where specialized skills of professionals weigh high, comparing salaries alone don’t reveal much. In fact, unless you are a shareholder, the cost structure of the AMCs shouldn’t bother mutual fund investors. For them, the expense ratio would mean everything. Higher the expense ratio, lower would be the competitiveness of a fund. The SEBI has already imposed an upper limit on the expense ratio. Under such circumstances, salary disclosure may not serve any additional purpose.

PersonalFN believes, smaller fund houses have mostly followed the SEBI directive, while some big names are missing in the list of compliant. This indirectly suggests that, the bigger fund houses pay their executives so handsomely that disclosing their salaries may surprise investors. PersonalFN is of the view that, investor education and better performance of schemes on offer are the two necessary things to increasing the retail participation.

When you buy a car, you don’t bother to know how much the top management of the car manufacturer earns. Rather you worry about features and technological soundness of the vehicle.

Mutual funds are the investment vehicles that help you achieve your long-term financial goals. Rather than another’s earning, individuals would be better off bothering about their own income.Will a fund manager’s salary guide your investment decision? Share your views with us below.
 

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Comments
mmmittal@hotmail.com May 04, 2016 PersonalFN is wrong in its view. There is no comparison between purchasing a car and investing in MF. One buys a car after comparing features, cost and experience of others, and gets done with it. But in MF investing, one puts own money for long term. Same as shareholders have right to know management compensation of their companies, so it is for MF. The very fact that large MFs resist disclosing fund manager salaries tells a tale of its own.
muthaiah@vsnl.net May 05, 2016 The example of Car manufacturer and a consumer is fine. But, how about if you're an equity share holder of the car manufacturer and the company is not doing that great and still would you vote in favour for increasing the pay package of the CEO. The example of car is not the right one here and let's compare an apple to apple.

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