Sebi proposes 30-day deadline for mutual fund deployment of NFO proceeds

Move to address concerns by AMCs losing first-mover advantage due to public disclosure

In a move aimed at enhancing the timely deployment of funds raised through mutual fund (MF) schemes during new fund offering (NFO) periods, the markets regulator -- Securities and Exchange Board (Sebi) -- has proposed a 30-day deadline for fund managers.

 

Currently, there is no stipulated time-frame for the deployment of NFO proceeds in line with the specified investment strategy.

 

In a consultation paper, Sebi has outlined that this timeline could be extended to 60 days with the approval of the fund house’s investment committee, but only under specific conditions, such as “expensive valuation in specific sectors or market capitalisations, market dynamics, uncertainty following geopolitical developments, or unavailability of securities with specific maturity.”

 

Further, asset management companies (AMCs) will be required to disclose the fund deployment timeline within fund documents prior to launch.

 

Sebi also advised that in challenging market conditions, AMCs should consider “slow down the collections in the first place.”

 

The proposed 30-day deadline was determined based on Sebi’s analysis of NFO deployment data over the past three financial years. This data showed that 93 per cent of new offerings successfully deployed funds according to the desired strategy within 30 days, and 98 per cent completed deployment within 60 days. Only nine out of 647 schemes exceeded the 60-day mark, with five taking over 90 days. 

 

“Considering that the size of the corpus required to be deployed after NFO could be significantly large, suitable flexibility is required for fund managers to deploy the funds according to 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. Therefore, it would be prudent to have a timeline within which deployment of funds may be required as per the prescribed asset allocation of the scheme,” the consultation paper stated.

 

The paper is open for public comments until November 20.    On the anvil 

Sebi has outlined that this timeline could be extended to 60 days with the approval of the fund house’s investment committee, but only under specific conditions 

Sebi says timeline arrived at based on past data 

Sebi study shows that 93% of the schemes deployed NFO proceeds within 30 days