New Delhi, Feb 27: The Securities and Exchange Board of India (SEBI) has issued a new directive requiring asset management companies (AMCs) to deploy funds raised through new fund offers (NFOs) within 30 business days from the date of unit allotment. This rule, set to take effect from April 1, 2025, aims to promote efficient fund utilization and curb potential mis-selling of NFOs.
Key Changes Introduced by SEBI
Until now, there was no specific timeline for deploying funds raised via NFOs. SEBI’s latest move seeks to ensure that AMCs collect only as much capital as they can realistically deploy within a reasonable timeframe.
Deployment Timeline and Oversight
- AMCs must clearly define achievable deployment timelines in the Scheme Information Document (SID) of a mutual fund.
- If an AMC fails to deploy funds within 30 business days, it must submit written reasons and detail efforts made to invest the amount to its Investment Committee.
- The committee can extend the timeline by another 30 business days, but only after examining the root causes of the delay.
- SEBI emphasized that extensions should not be granted if the scheme’s assets are liquid and readily available.
Consequences of Non-Compliance
If funds are not deployed within the prescribed timeframe:
- The AMC will be barred from accepting new investments into the same scheme until the funds are fully allocated as per the SID.
- AMCs cannot impose an exit load on investors withdrawing from such schemes after 60 business days of non-compliance.
- Any deviation from the stated asset allocation must be reported to the Trustees at each stage.
Additional Measures for Better Fund Management
- Fund managers can adjust the NFO period (except for Equity Linked Savings Schemes – ELSS) based on market conditions and asset availability.
- To prevent mis-selling, SEBI has mandated that AMCs cap the distributor commission for switch transactions from an existing scheme to an NFO at the lower of the two commission rates.
Background and Industry Impact
SEBI introduced these measures after identifying cases where NFO funds remained unallocated for extended periods due to factors like large fund sizes and market volatility. The directive is expected to streamline fund deployment, ensuring greater transparency and accountability among AMCs.
The Association of Mutual Funds in India (AMFI) will soon release detailed implementation guidelines in consultation with SEBI.
This move is seen as a step towards strengthening investor protection and enhancing the credibility of mutual fund offerings in India.
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