Get Instant Loan up to ₹10 Lakh!
MFs to deploy NFO funds within 30 days of allotment from April 1: How will this benefit AMCs?
- MF's deployment of NFO funds in a specific timeline aims to encourage AMCs to collect only as many funds in NFOs as can be deployed in a reasonable period of time and to discourage any mis-selling of mutual fund scheme NFOs.
Capital markets regulator Securities and Exchange Board of India (SEBI) made it mandatory for asset management companies (AMCs) to deploy the money collected from investors through new fund offers (NFOs) within 30 days from the date of the allotment of units. This will come into effect from April 1, 2025. At present, there is no time limit for the deployment of funds.
The measure aims to encourage AMCs to collect only as many funds in NFOs as can be deployed in a reasonable period of time and to discourage any mis-selling of mutual fund (MF) scheme NFOs. In a circular, SEBI asked AMCs to specify the achievable timelines in the Scheme Information Document (SID) of a mutual fund scheme regarding the deployment of the funds for the specified asset allocation of the scheme and garner funds during the NFO.
NFO fund deployment timeline: How will this benefit AMCs?
"In an exceptional case, if the AMC cannot deploy the funds in 30 business days, it must give reasons in writing, including details of efforts taken to deploy the fund to the investment committee of the AMC," said SEBI.
The committee can extend the timeline by around 30 business days while recommending how to ensure deployment within 30 business days going forward and monitoring the same. It would examine the root cause of deployment delays before granting approval for an apart or full extension.
“The Investment Committee shall not ordinarily give part or full extension where the assets for any scheme are liquid and readily available,” said SEBI. SEBI said that trustees will be responsible for monitoring funds collected in NFO and taking steps to ensure that the NFO funds are deployed within a certain timeframe.
According to the market regulator, if the funds are not deployed according to the asset allocation mentioned in the SID along with extended timelines, AMCs will not be allowed to receive fresh flows in the same scheme until the funds are deployed according to the asset allocation mentioned in the SID.
Additionally, AMCs will not be permitted to levy an exit load on investors exiting such scheme(s) after 60 business days of not complying with the scheme's asset allocation and will report deviation, if any, to Trustees at each of the stages.
The move came after SEBI observed that, in a certain instance, there was a considerable delay in deploying the funds collected through NFO. The delay was attributed to the size of the funds collected and the volatility in the market.
To effectively manage the fund flows in NFO, the fund manager can extend or shorten the NFO period (except for Equity Linked Savings Scheme or ELSS) based on his or her view of the current market dynamics and trends, availability of assets, and ability to deploy funds collected in NFO.
To discourage mutual fund distributors from misselling MF schemes in case of a switch transaction to NFO of a regular plan of mutual fund scheme from an existing scheme managed by the same AMC, SEBI said that the AMC would have to ensure that the distribution commission paid is lower than the commissions offered under the two schemes of switch transaction.
Catch all theBudget News,Business News, Mutual Funds news,Breaking NewsEvents andLatest News Updates on Live Mint. Download TheMint News App to get Daily Market Updates.
Business NewsMutual FundsNewsMFs to deploy NFO funds within 30 days of allotment from April 1: How will this benefit AMCs?
First Published:27 Feb 2025, 07:23 PM IST
- Top Gainers
- Top Losers
- 52 Week High