In a bid to enhance investor protection and expedite fund deployment, India’s Securities and Exchange Board of India (SEBI) has proposed a significant change to the timeline for new fund offers (NFOs). Under the new regulations, asset management companies (AMCs) would have just 30 days from the allotment date to deploy funds raised during NFOs, a stark reduction from the current six-month window.
This move follows observations by SEBI that AMCs often delayed deploying funds due to factors like large fund sizes, market volatility, or strategic considerations. While AMCs currently enjoy flexibility in timing the NFO launch to capitalize on favorable market conditions, SEBI believes this prolonged delay might not be in the best interests of investors.
The regulator’s analysis of NFOs over the past three fiscal years revealed that the majority of schemes achieved asset allocation within 60 days. This finding strengthens SEBI’s rationale for a shorter deployment period, as it suggests that AMCs can efficiently manage their investments within a tighter timeframe.
However, acknowledging the challenges posed by market dynamics and the need for flexibility, SEBI proposes a 60-day grace period. If AMCs fail to meet the 30-day deadline without securing an extension, they will face consequences. These include a ban on launching new schemes until the funds are fully deployed and a prohibition on levying exit loads on investors withdrawing after the 60-day grace period.
This proactive approach by SEBI aims to ensure that investor funds are utilized promptly and efficiently. By setting a stricter deadline and establishing clear consequences for non-compliance, SEBI seeks to create a more transparent and accountable environment for the mutual fund industry, ultimately fostering greater investor confidence and protection.
Public comments on the proposed regulations are being invited until November 20th, providing an opportunity for stakeholders to express their views and contribute to shaping the future of NFO deployment practices in India.
