Market regulator Sebi sets 30-day deadline for NFO corpus deployment

Change comes amid criticism around surge in new offerings by asset managers

The Securities and Exchange Board of India (Sebi) has mandated mutual funds (MFs) to deploy the corpus collected during the new fund offering (NFO) period within 30 business days.

 

In a circular on Thursday, the markets regulator also asked asset management companies (AMCs) to specify an achievable timeline for fund deployment in their scheme document.

 

The deadline can be extended by another 30 days in "exceptional cases".

 

"If the AMC is not able to deploy the funds in 30 business days, reasons in writing, including details of efforts taken to deploy the funds, shall be placed before the Investment Committee of the AMC. The Investment Committee may extend the timeline by 30 business days," Sebi said.

 

 

The move is part of Sebi’s measures to curb fund launches by AMCs.

 

At an MF industry event last week, Sebi chairperson Madhabi Puri Buch said the regulator was taking steps to address the root cause behind the surge in MF scheme launches, while indicating that it may look at more measures.

 

In 2024, AMCs launched over 200 schemes.

 

According to the circular, failure to deploy NFO proceeds on time can lead to regulatory action, including suspension of fresh inflows into the newly-launched schemes.

 

The AMC can extend or shorten the NFO period based on market dynamics, availability of assets and his ability to deploy funds collected in NFO, the circular said.

 

The circular also addresses misselling of NFOs by distributors. From April 2025, the distributors will not benefit by switching investors' money to an NFO.

 

"In order to discourage misselling by MF distributors, in case of switch transaction to NFO of a regular plan of MF scheme from an existing scheme managed by the same AMC, the AMC shall ensure the distribution commission paid is lower of the commissions offered under the two schemes of switch transaction," the circular added.