Covid-19 to take a toll on bonuses of domestic mutual fund employees

Employees of domestic mutual funds may receive single-digit bonuses despite the industry seeing steady asset growth for the better part of the year.

Some asset managers may skip the payouts altogether as they take cognisance of the impact the Covid-19 pandemic may have on future earnings. Salary cuts may be in the offing as well, if the existing uncertainty prevails, experts said.  

Fund managers’ compensation is largely tied to the assets they manage and scheme performance. In a good year they can hope to take home 50-100 per cent of their annual salaries as bonuses, which are typically paid in April or May. The variable pay component for the sales, marketing and business development teams, on the other hand, is typically proportionate to the growth in assets and investor folios.

In the absence of a pandemic, bonuses for the fund managers could have likely ranged from 15-25 per cent this year and from 20-50 per cent for sales and marketing teams, experts reckon. That range will narrow down to 0-10 per cent for all employees. Employee remuneration contributes 50-60 per cent to the overall costs of most asset managers.  

"It would be better for fund houses to conserve cash in an uncertain environment rather than go overboard on doling out bonuses now and face a problem later," said Sunil Subramaniam, CEO, Sundaram MF.

"Some AMCs may not only not give bonuses but also cut salaries in a few months," added a senior industry official. According to him, many AMCs would have projected a revenue growth of 15-20 per cent in FY21 over the previous year but are now likely to see a 20 per cent de-growth, implying a 40 per cent shortfall in targets.

"Not paying bonuses may not be fair to employees but that's a call that the individual fund houses will have to take," said Subramaniam.

It was a dismal year for equity fund managers, with the polarization in equities impacting returns. The rally for much of the year was led by select bluechips even as several mid- and smallcap names fell sharply. The market crash in February and March dashed any hopes of a turnaround as benchmark indices tumbled 25-30 per cent.

A recent study released by S&P Dow Jones Indices showed that 40 per cent of large-cap equity funds and 28 per cent of mid- and small-cap equity funds underperformed their respective indices over a one-year period ended December 2019. Over a three-year period, this underperformance increased to 84 per cent and 37 per cent, respectively.

Debt fund managers had a tough year as well, with MFs that took a significant exposure to downgraded debt papers taking a sharp haircut and hit on the net asset values of the schemes. Some large fund houses had to resort to borrowing from banks in March to meet the redemption requests amid the covid-19 pandemic.

"It will be a little sad if the bonuses of last year for the sales and marketing teams get impacted," said Swarup Mohanty, CEO, Mirae Asset MF. "Despite the challenges in both debt and equity markets, the industry managed to hold on to the AUM last year, which is a testament to the efforts put in by the sales and marketing teams."

Total industry assets slid to Rs 22.26 trillion as of March 31, 2020, a 6 per cent drop over the same period last year. Equity assets totalled Rs 5.78 trillion, down 31 per cent over the corresponding period the previous year.

Inflows through monthly systematic investment plans (SIPs) in equity schemes have remained steady at over Rs 8,000 crore during the year even though lump sum investments have come under pressure of late.

The shift in investor preference from physical assets such as real estate and gold to financial savings has boosted inflows into the sector over the past few years.