NEW DELHI: Capital market regulator Securities and Exchange Board of India (Sebi) is proposing to make it mandatory for mutual funds to deploy money collected from investors through new fund offers (NFOs) within 30 days from the date of allotment of units. Currently, there is no time limit for deployment of funds.
In a consultation paper floated by the market regulator, it has said in exceptional cases when asset management company (AMC) is not able to deploy the funds in 30 business days, it must give reasons to the investment committee in writing, including details of efforts taken to deploy the funds. The investment Committee should examine the root cause before approving part or full extension.
As per the proposal, if the AMC has failed to allocate the funds within the given time limit, it will not be permitted to launch any new scheme till the time the funds are deployed. The AMC will be also be barred from levying exit load, if any, on the investors exiting such scheme(s) after 60 business days of not complying with the asset allocation of the scheme.
The regulator’s plan to have a 30-day time period for deployment of funds is based on an analysis of 647 NFOs. It noticed that 603 out of the 647 NFOs, the mutual funds took less than 30 days from the date of allotment of units to achieve the asset allocation as specified in the scheme information document (SID) of the scheme. In case of 30 NFOs, AMCs took between 30-60 days, as many as nine took between 60 and 90 days and only five took more than 90 days to allocate funds.
The regulator has also argued that a time period of 90 days or more for the deployment of the funds garnered in the NFO may not be in the interest of investors.