SEBI has issued a new circular making it mandatory for mutual funds to deploy the proceeds from new fund offers within 30 days from the date of unit allotment. In case of any delays beyond the 30-day deadline, the AMC must provide written reasons to the Investment Committee, along with details of efforts made to deploy the funds. The Investment Committee may grant an extension of an additional 30 days, while also ensuring measures are in place for timely deployment in the future.
Trustees are required to monitor the deployment of funds collected in NFOs and ensure they are deployed within a reasonable timeframe. If the funds are not deployed as per the scheme information document within the extended timeline, the AMC will not be allowed to receive fresh flows in the same scheme until the asset allocation is completed. Exit loads will also be waived for investors exiting such schemes in case of non-compliance after 60 business days.
To manage fund flows effectively, the fund manager may extend or shorten the NFO period based on market dynamics and the ability to deploy funds collected. SEBI also introduced guidelines to prevent mis-selling in switch transactions to NFOs of regular plans of mutual fund schemes. The fund house must ensure that the distribution commission paid is lower than the existing scheme managed by the same AMC.
The new provisions will come into effect on April 1 and apply to all NFOs. Furthermore, detailed guidelines regarding distribution commissions will be specified by AMFI in consultation with SEBI.
