MF panel mulls reversal of NFO reforms

The seven-member panel on mutual fund (MF), headed by Securities and Exchange Board of India’s (Sebi’s) whole time member Prashant Saran, on Friday considered a proposal to reverse changes made a year ago in the process of new fund offers (NFOs). This was in addition to the existing proposals to revert to a single cheque system and incentivise sellers. The panel is expected to submit its recommendations in few weeks.

According to a member of the panel, NFOs have shrunk both in number and size, following the changes made by Sebi in 2010. In March 2010, Sebi reduced the NFO period from 30-45 days to 15 days. It also made the use of Application Supported by Blocked Amount facility mandatory while applying for NFOs. It mandated that the allotment process must be completed within five days of the closure of the offer. Sebi’s logic for mandating shorter processing time was meant to ensure that investors’ money did not remain idle for a long period.

According to the member, this has reduced the number of centres available for processing NFOs from 200 to less than 50, as MFs have stopped taking cheques for remote centres because if cheques cannot be realised quickly, the allotment cannot be completed in five days.

“NFOs must be given sufficient time and reach, as they help industry bring in new investors. The 50 centres are already saturated,” the member said in a presentation. The average size of investment in NFOs has shrunk from Rs 62,000 to Rs 8,000.

However, industry experts say 80 per cent of the industry’s assets come from the top 10-20 centres, leaving MFs with ample scope for expansion.