The Securities and Exchange Board of India (SEBI) has proposed new guidelines to improve the deployment timelines for funds raised through New Fund Offers (NFOs) in a consultation paper issued on October 30. According to the proposed rules, mutual funds must deploy the collected funds within 30 days from the date of unit allotment. If exceptional circumstances arise that hinder compliance, an Asset Management Company (AMC) may seek an additional 30-day extension, provided they justify the delay to their Investment Committee and outline a roadmap for timely deployment.
Currently, SEBI mandates a five-day period for the allocation of units after an NFO closes, but it does not specify a timeline for fund deployment. The new proposal aims to close this gap, addressing concerns identified during SEBI’s examinations of AMCs, which revealed delays due to large NFO collections and volatile market conditions.
SEBI’s consultation paper highlighted that most AMCs typically meet their asset allocation targets within the proposed 30-day window. A review of 647 NFOs showed that 603 funds met their allocation targets within 30 days, and when the timeframe was extended to 60 days, compliance improved further, with 633 funds achieving their targets. Based on this data, SEBI concluded that a 90-day extension would be unnecessary and potentially detrimental to investors, leading to the recommendation of a maximum 60-day deployment period, consisting of the initial 30 days and an optional 30-day extension if required.
Additionally, the proposal emphasizes accountability in cases where AMCs cannot meet the deployment timeline. If an extension is needed, the AMC’s Investment Committee must evaluate the reasons for the delay and implement mechanisms to ensure compliance with the extended deadline.
This initiative is seen as a positive move towards standardizing fund deployment practices across the mutual fund industry. By establishing clear expectations and limiting the timeframe for deploying NFO funds, SEBI aims to enhance investor trust. The public comment period for the proposal is open until November 20, giving industry participants the opportunity to provide feedback and potentially influence the final regulations.
Disclaimer: This response is for informational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor or conduct your own research before making investment decisions.
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