Sebi paper wants MFs to deploy NFO fund within 30 days of allotment

Regulator proposes that companies failing to meet deployment deadlines without seeking an extension be barred from launching new schemes

The Securities and Exchange Board of India (Sebi) has issued a consultation paper on improving the deployment of funds raised by asset management companies (AMCs) during New Fund Offers (NFOs). 

 

“During examination of the periodic submissions made by AMCs, it was observed that in a certain instance there was a considerable delay in deployment of the funds collected through NFO. The delay was attributed to the size of the funds collected as well as the volatility in the market,” said the paper.

 

AMCs should deploy NFO funds within 30 business days of allotment, it said.

 

The paper proposed that if AMCs miss the deployment deadline without requesting an extension, they should be restricted from launching new schemes until the funds are deployed. Additionally, they will be unable to impose exit loads on investors who withdraw after the 60-day grace period.

 

Currently, AMCs are required to launch a scheme within six months from the date the market regulator issues its final observation on that scheme. However, there are no specific regulations mandating how quickly the collected funds need to be invested according to the scheme's stated objectives.

 

While many NFOs have efficiently deployed funds, data from the past three financial years reveals that some schemes took more than 90 days to allocate funds as required. Out of 647 NFOs, 603 managed to complete asset allocation within 30 days or less.

 

This consultation underscores the need for clearer timelines to ensure timely fund deployment, thereby safeguarding investors' interests.

  “Considering that the size of the corpus required to be deployed after NFO could be significantly large, suitable flexibility is required for the fund managers to deploy the funds according to his/her/their views on the market. However, the AMC should not retain the proceeds received through NFO for an indefinite period without deployment in the stated assets,” said the paper.