For now, the regulator said, employees can invest 10% of their compensation in mutual funds managed by them instead of the required 20%.

This relaxation does not apply to the managing director, fund managers and department heads of a fund house.

The rules will take effect from October 1.

According to the Sebi notification, employees under 35, who are not responsible for any service, must invest 10% of the remuneration in shares of their mutual the first year.

It will be increased to 15% in the second year and, as of October 1, 2023, all employees will be required to invest 20% of their compensation in such plans.

The markets regulator said all benefits and non-monetary benefits should be counted in cost to business (CTC).

“However, retirement benefits and bonuses paid upon death or retirement would not be included in the CTC,” the regulator added.

Upon the expiration of a three-year lock-in period, Sebi said the investment would automatically be redeemed in liquid mutual funds.

For investments in open plans, employees can redeem units twice during a financial year, with the prior approval of the compliance officer.

By rule, fund managers of funds of funds (FoF) are required to invest 20% of their remuneration.

However, FoF programs investing in a single exchange-traded fund (ETF) are exempt under the rule.

Designated employees will be allowed to offset existing investments in their mutual fund companies against the rule. They will also be allowed to keep immobilized units beyond the immobilization period and these will also count towards compliance with the rule instead of being forced to purchase new units.

In the event of a violation of the code of conduct, fraud or gross negligence, the shares will be recovered and the redeemed amount will be credited to the program, Sebi added.

In order to make mutual fund managers more accountable in their investment decisions, the market regulator announced in April that “key employees” of an asset management company, such as fund managers, Experienced managers, compliance officers, fund management and research teams, as well as sales managers and traders will be expected to receive one-fifth of the compensation in the form of units held in mutual funds investment that they manage.

In the new notification, the market regulator replaced “key employees” with “designated employees” and the term “remunerated in the form of units” was replaced by “obligatorily invested in units”.