The Securities and Exchange Board of India (SEBI), in a new consultation paper, has proposed enhancing the deployment of funds collected by Asset Management Companies (AMCs) after floating New Fund Offers (NFOs) in the market. The capital markets regulator has sought public comments on proposed timelines for how quickly these funds should be allocated according to a scheme’s asset allocation.
According to SEBI, Asset Management Companies (AMCs) are expected to invest New Fund Offers (NFO) funds within 30 business days from the date of allotment. If this timeline cannot be met, AMCs must provide a detailed explanation and present it to their Investment Committee for review. The Investment Committee has the authority to extend the deadline by an additional 30 business days if deemed necessary.
The primary objective of SEBI is to tackle the issue of delays in fund deployment that have been identified in certain NFOs. Previous assessments have highlighted that delays are often caused by factors such as fund size and market volatility.
While there are existing regulations stipulating the duration for which NFOs can remain open, there is a lack of specific guidelines requiring the prompt investment of collected funds in alignment with the scheme’s defined objectives.
As per data from the past three financial years, despite the majority of NFOs effectively deploying funds, some schemes exceeded the 90-day required timeline for investment. Of the total of 647 NFOs analyzed, 603 successfully achieved asset allocation within 30 days or less.
The proposed change to the regulatory filing process for NFOs also includes adjusting the requirement for AMCs to upload the draft Scheme Information Document (SID) before the NFO launch. The SID is a document that contains all the necessary information about the new fund.
In the consultation paper released on Wednesday, Sebi suggested that Asset Management Companies (AMCs) send the initial draft of Scheme Information Documents (SIDs) exclusively to Sebi. The SIDs will be accessible to the public only five working days before the scheme is launched. These recommendations strive to ensure a balance between public transparency and safeguarding original concepts in the Rs 67-trillion domestic mutual fund sector.