The market regulator Securities and Exchange Board of India (SEBI) has proposed stricter timelines for mutual fund houses to invest the funds collected through New Fund Offers (NFOs). SEBI observed that in some cases, there were significant delays in Asset Management Companies (AMCs) deploying the money raised from NFOs into eligible securities, as specified in the Scheme Information Document (SID).
According to SEBI’s proposal, AMCs will now have a maximum of 30 calendar days from the date of allotment of units to investors to achieve the stated asset allocation of the scheme. If needed, AMCs can seek an additional 30-day extension from their investment committees by providing valid reasons for the delay in writing. The committees will review the requests and recommend a plan of action to address the issue. AMCs also will not be allowed to launch new schemes until they have fully deployed the capital from previous NFOs within the stipulated timelines.
SEBI came to this decision after examining periodic reports submitted by AMCs. In a few instances, the delayed deployment was attributed to the large amount collected as well as volatility in the market over that period. Industry experts believe the tighter timelines are aimed at ensuring fund managers invest NFO collections in a timely manner, instead of retaining the funds indefinitely.
Data analyzed by SEBI showed that the vast majority (603 out of 647) NFOs achieved their stated asset allocation within 30 calendar days of allotment to investors. A total of 633 NFOs completed this process within 60 days. Given that nearly 98% of schemes launched in the last three fiscal years complied with the 60-day timeframe, SEBI felt a 90-day period was unnecessary.
The regulator has invited public comments on the proposal by November 20, after which it will take a final call. The move is intended to protect investors’ interests and ensure their funds are deployed expeditiously by AMCs as per the advertised investment strategy.
