The Securities and Exchange Board of India (SEBI) has introduced new timelines and guidelines for the deployment of funds raised in New Fund Offers (NFOs) by Asset Management Companies (AMCs). The updated regulations, aimed at ensuring timely fund deployment and preventing mis-selling, will come into effect from April 1, 2025.
SEBI has mandated that AMCs must specify achievable timelines for deploying NFO funds in the Scheme Information Document (SID). Funds raised in an NFO must be deployed within 30 business days from the date of allotment of units. In cases where deployment is delayed, AMCs must submit the reasons in writing to the Investment Committee, which may grant an extension of up to 30 additional business days after evaluating the cause of the delay.
To strengthen oversight, trustees must monitor fund deployment and take necessary actions to ensure timely execution. If AMCs fail to deploy funds within the specified timeline, including an extension, they will face certain restrictions. The AMC will not be allowed to accept fresh investments in the scheme until deployment is completed. Investors exiting the scheme after 60 business days will not be subject to an exit load. Additionally, AMCs must notify investors about their option to exit the scheme without an exit load through email, SMS, or other communication channels. Any deviation from the timeline must be reported to trustees at every stage of the delay.
Fund managers have also been granted flexibility in managing NFO periods based on market conditions. Except for Equity Linked Savings Schemes (ELSS), they may extend or shorten the NFO period depending on market dynamics, availability of assets, and fund deployment capacity. These adjustments must comply with SEBI’s Master Circular for Mutual Funds dated June 27, 2024.
In a bid to prevent mis-selling by distributors, SEBI has tightened rules on switch transactions to NFOs of regular plans from existing mutual fund schemes under the same AMC. AMCs must ensure that the distribution commission paid in such cases is the lower of the two schemes involved. The Association of Mutual Funds in India (AMFI) will provide detailed guidelines on this provision in consultation with SEBI.
These measures have been introduced to ensure NFO funds are deployed within a reasonable timeframe, preventing long periods of idle capital. The guidelines are also expected to reduce the risk of mis-selling by preventing fund houses from raising excessive NFO funds that cannot be immediately deployed. SEBI’s move is also focused on improving investor protection by ensuring transparency and accountability in mutual fund schemes.
