The Securities and Exchange Commission of India (SEBI) on Thursday directed mutual fund houses to collect funds in the new fund quote (NFO) within 30 business days from the date of the allocation unit, due to concerns about wrong sales by asset management companies (AMCS).
The move is intended to encourage AMC to collect only large amounts of funds in the NFO, i.e. it can be deployed within a reasonable time and to block any wrong sales to the NFO.
Regulators have asked AMC to specify an achievable timeline in the Program Information Document (SID) to make new products related to funding deployments based on the program’s asset allocation and GARNER funds during the NFO.
“The AMC shall deploy funds obtained in the NFO within 30 working days from the date of allocating the units.” The new rules will come into effect on April 1, 2025.
Currently, there is no timetable to deploy any funds collected in the NFO.
In some cases, fund homes sell high-risk mutual fund plans to risk-risk investors. Even the fund’s houses took more than a month to deploy the funds collected in these NFOs, especially in thematic funds, which hurt investors’ interest. An industry expert said SEBI has been worried about this practice for a long time and has now announced a strict fund deployment timeline.
Regulators say that if AMC cannot deploy funds within 30 business days, its reasons, including details of efforts to deploy funds, should be placed before AMC’s investment committee.
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The circular said: “The Investment Commission can extend the timeline by 30 working days, and also makes recommendations on how to ensure deployment and monitoring within 30 working days.”
Sebi said the committee should check the root causes of deployment delays before approving partial or full expansion. Generally, in the case where the asset of any scheme is liquid and easy to obtain, it should not usually give part or all of the expansion.
Market regulators further stated that if funds are not deployed in accordance with the asset allocation mentioned in the SID, AMC will not be allowed to receive new traffic in the same plan until funds are deployed.
Additionally, AMC “does not allow investors who will exit the program to exit the load (if any) after 60 working dates of asset allocations that do not comply with the program.”
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In order to effectively manage fund traffic in NFOs, fund managers can expand or shorten NFO periods (except for equity-linked savings plans or ELS) based on their perceptions of market dynamics, asset availability, and their ability to collect funds in NFOs.
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