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The Securities and Exchange Board of India (Sebi) on Wednesday restored the six-month validity period of the observation letter given to mutual fund houses by the markets regulator to launch new fund offers (NFOs).
Sebi's observations are necessary for any company or fund houses to launch public issues like initial public offers (IPOs) or NFOs.
In light of the market turmoil caused by covid-19 last year, Sebi in March 2020 had relaxed the validity period of the observation letter given for launching NFOs to one year from six months.
“However, for all schemes (NFOs) where Sebi has already issued observation letter and NFOs are yet to be launched, the schemes shall be launched within one year from the date of SEBI observation letter," the regulator said in a circular on Wednesday.
The circular will come into force with immediate effect.
This circular has been issued in exercise of the powers conferred under Section 11 (1) of the Securities and Exchange Board of India Act 1992, read with the provision of Regulation 77 of Sebi (Mutual Funds) Regulation, 1996 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.
An NFO by an asset management company is somewhat like an initial public offer (IPO). Under this, an AMC issues fresh fund units for investing based on a particular theme, which could be large-cap, mid-cap, international equities or even bonds. At an NFO level, a fund house hasn’t even built a portfolio of stocks or other instruments as this point a fund house simply collects the money.
To reduce the compliance burden on market participants, Sebi last year had provided various relaxations to mutual fund houses, including the extension in the deadline for submission of financial results.
