SEBI sets timelines for NFO fund deployment by asset management companies

Markets regulator SEBI has decided to introduce timelines for deploying funds raised through New Fund Offers (NFOs) by asset management companies (AMCs) and relaxed regulatory framework regarding the alignment of AMC employees' interests with those of unitholders.

Additionally, the regulator has mandated disclosure of stress testing for all mutual fund schemes to provide greater transparency to investors.

These proposals, approved by SEBI's board on Wednesday, aimed at enhancing operational flexibility for mutual funds while ensuring greater accountability and trust among investors.

Regarding deployment timelines, SEBI said that fund managers must deploy funds collected during an NFO as per the specified asset allocation of the scheme, typically within 30 days.

If funds are not deployed within the specified timeline, investors will have the option to exit the scheme without paying an exit load, through regulator said in a statement.

The framework discourages AMCs from collecting excess funds during NFOs, as investors can invest in open-ended schemes later at the prevailing Net Asset Value (NAV).

"The new framework is aimed at encouraging AMCs to collect only as many funds in NFOs as can be deployed in a reasonable period of time (i.e. ordinarily 30 days) since in the open-ended funds investors always have the option to enter the scheme at a later date at the prevailing NAV," SEBI said.

"The framework provides an option to investors to exit the scheme without exit load in case the fund manager is unable to deploy the fund within the specified timeline," it added.

To address the issue of possible mis-selling in NFOs, for switch transactions, the distributor shall be entitled to the lower of the two commissions offered under the two schemes of the switch transaction, SEBI said.

To facilitate ease of doing business for asset management companies' employees, SEBI has decided to relax the regulatory framework pertaining to the 'Alignment of interest of AMC employees' with unitholders.

Under this, the regulator has decided to reduce the minimum investment amount required for designated employees, reduce the frequency of disclosures related to compliance relaxed requirements for employees managing liquid funds and simplified redemption norms.

Additionally, SEBI said that employees who resign will now have a reduced lock-in period for their investments.

The regulator has empowered the committee to oversee compliance by designated employees.

Sandeep Bagla, CEO, TRUST MF, said that SEBI having a relook at the 'Skin in the Game' regulation is a welcome step in the right direction. The MF industry is expanding fast and needs to retain quality professionals to serve and safeguard the interests of unit holders.

One needs to examine the relevance, context and effectiveness of regulations regularly," he added.