Skin in the Game Rule for AMCs: SEBI Slabs (2026)

The skin in the game rule is SEBI's requirement that senior mutual fund staff take a defined slice of their pay as units of the very schemes they run, and hold those units for three years. The formal name is alignment of interest of designated employees of AMCs with the unit holders of the mutual fund schemes. It came in by circular dated April 28, 2021, was revised by circular dated March 21, 2025, and now sits in the Master Circular for Mutual Funds.

How much of the pay has to go into units?

The requirement sits in Regulation 22(3)(b) and is set out as CTC slabs. AMCs choose one of two options for their designated employees: Option A includes employee stock options in the denominator, Option B excludes them and applies a higher percentage. An employee with no ESOP component is covered under Option A.

The percentages apply to gross annual CTC net of income tax and any statutory contributions, meaning provident fund and NPS.

Who counts as a designated employee?

Paragraph 7.14.1 lists them: the chief executive officer, chief investment officer, chief risk officer, chief information security officer, chief operating officer, fund managers, compliance officer, sales head and investor relation officers, heads of other departments and dealers of the AMC; direct reportees to the CEO other than a personal assistant or secretary; the fund management and research teams; and other employees the AMC and trustees identify.

A 2025 refinement split them into two categories. Category A, which includes the CEO, CIO, fund managers, the investment research team, dealers, the CRO, the compliance officer and members of the investment committee, takes the slab based on the employee's own CTC. Category B, which covers direct reportees to the CEO, the CISO, COO, sales head, investor relation officers and heads of non-investment departments, takes Slab 0 or Slab 1 irrespective of CTC as the AMC decides, with the condition that an employee directly or indirectly related to the investment function must be placed in Slab 1.

How the investment actually works

The mechanics matter more than the headline percentage:

• Proportionate to AUM. The mandated investment is spread across the schemes the employee has a role or oversight over, in proportion to their AUM, using the previous month's closing AUM. Exchange traded funds, index funds, overnight funds, fund of funds investing only in a single ETF, and close ended schemes existing as on September 30, 2021 are excluded from that apportionment.
• Paid over 12 months, on the date of payment of the relevant salary, perks, bonus or non-cash compensation. For deferred compensation including stock options, the AMC decides whether the deduction happens at grant or at exercise, and must apply the same policy to all its designated employees in a financial year.
• Growth option first. The investment goes into the growth option; where that is unavailable, into reinvestment of income distribution cum capital withdrawal; and failing that, into the payout option.
• Locked in for 3 years or the scheme tenure, whichever is less.

Two diversification carve-outs exist. A dedicated fund manager running a single scheme or category must take 50 per cent in that scheme or category and may take the other 50 per cent in schemes whose riskometer value is equivalent or higher and whose underlying portfolio is of similar nature. For designated employees managing liquid fund schemes, up to 75 per cent of the amount otherwise required in liquid schemes may go into higher-risk schemes managed by the same AMC.

Where does this show up publicly?

This is the part that turns a compensation rule into a disclosure you can actually read. Regulation 5E of the SEBI (Prohibition of Insider Trading) Regulations, 2015 requires an asset management company to disclose, on a quarterly basis, the details of holdings in units of its mutual fund schemes, on an aggregated basis, held by designated persons of the AMC, trustees and their immediate relatives, on the stock exchange platform or as otherwise specified.

Regulation 5E(2) sits behind it: transactions in the AMC's own units above specified thresholds must be reported by the person to the compliance officer within two business days. Systematic transactions may be reported once, at the first instalment.

So the aggregate is public and quarterly; the individual transaction reporting is internal. That distinction is worth keeping straight before reading too much into any single quarter's number.

How to read it alongside the rest of a scheme's disclosures

The skin in the game rule is one of several places SEBI ties an AMC's incentives to unit holders'. Read it with:

• The scheme information document, where scheme terms and risk classification are stated.
• The mutual fund factsheet, for the monthly portfolio and manager attribution.
• Direct vs regular mutual fund and total expense ratio, for what the scheme costs you.
• Insider trading disclosure, for the wider PIT disclosure regime this quarterly aggregate belongs to.

Flock reports the filings and disclosures themselves, each stamped with its date and linked back to the AMC or regulator that published it. What any of it means for you is your call to make.