Every time your mutual fund (MF) launches a new scheme, it needs the clearance of the Securities and Exchange Board of India (Sebi). It checks the MF on various parameters, such as clarity of offer document, its name and objective.
Clarifications: Once the draft offer document is filed, Sebi gets back with queries or doubts, if any. For instance, if the new MF looks similar to any of its existing schemes, Sebi asks the fund house to justify the proposed scheme. If the MF’s proposed name isn’t in sync with its objective, Sebi asks for clarifications.
21-day deadline: If Sebi doesn’t get in touch with the fund house within 21 days, the fund can go ahead with the launch. If Sebi does get back, the fund house needs to reply soon. Sebi then takes another one to two weeks to revert with more queries, if any. The process continues till the final certificate of approval is issued.
The practice: In practice, even if Sebi doesn’t revert within 21 days, fund houses prefer to wait to hear from it before launching an MF. Sebi is fairly active in raising queries.