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SEBI has proposed introduction of a timeline in deployment of funds post NFO. According to the new proposal, fund houses will be given a maximum of 30 days to deploy funds raised during the NFO period.
However, in case of a delay, fund houses can seek a 30 days extension from their investment committee by giving reasons. Investment committee has a right to reject such a request.
If the fund house does not deploy funds within the timeline, they will not be allowed to launch fresh NFOs or levy exit loads till the time of deployment.
SEBI also said that the fund houses should specify achievable timelines in the SID itself.
In a study done by SEBI, it found that of the total 647 NFOs launched during the last three financial years, 603 schemes deployed funds received from NFOs within 30 days whereas 30 schemes did it within 60 days. Only a handful of schemes took over 60 days to deploy funds.
SEBI said, “Considering that most of the schemes achieved asset allocation in 60 days or less, having a time period of 90 business days for the deployment of the funds garnered in the NFO may not be in the interest of the investor.”
The market regulator said that the root cause of delay are expensive valuation, market dynamics and uncertainty following geo political development. SEBI said that the investment committee of AMCs should look at the root cause before granting any extension.
Further, if the market becomes overvalued, fund houses should slow down collection of funds in the first place, proposes SEBI.
SEBI norms also allow fund houses to alter the asset allocation for short term on defensive consideration. The market regulator also said that such a short term period should be defined to avoid any confusion. The market regulator is open to discuss the timeline to define short term periods like 30 days, 60 days or 90 days.
These proposals will not be applicable for index funds and ETFs.
You can submit your feedback to SEBI by November 20.
