SEBI Proposes 60-Day Deadline for Mutual Fund NFO Funds to Boost Timely Investment
The Securities and Exchange Board of India (SEBI) has proposed a new rule to ensure that mutual funds invest the money collected from New Fund Offers (NFOs) more quickly. Under this plan, SEBI suggests that asset management companies (AMCs) should invest funds within 30 days of assigning units to investors. If an AMC faces unusual challenges that prevent it from meeting this 30-day deadline, it can ask the Investment Committee for an extra 30 days, but it must give a written explanation for the delay. If granted, this would provide AMCs with a maximum of 60 days to complete the fund deployment.
This proposal was included in a consultation paper SEBI released on October 30, seeking public feedback until November 20. SEBI’s paper mentioned that some NFOs had experienced delays in deploying the money collected, which was often due to large fund sizes or market fluctuations.
Right now, there is no specific rule for how soon mutual funds must invest the money after an NFO closes, though SEBI does require units to be allotted to investors within five days of the NFO ending. SEBI’s consultation paper highlighted the need for a specific timeline for deploying funds, pointing out that while fund managers do need some flexibility, holding onto investors’ money for too long isn’t ideal.
SEBI’s advisory committee originally suggested allowing AMCs up to 90 days (60 days for the initial deployment, plus a 30-day extension if necessary). However, SEBI’s analysis of data from 647 mutual fund schemes showed that most funds managed to meet their investment targets much faster. In fact, 603 of these NFOs completed their investments in under 30 days, and a total of 633 NFOs were invested within 60 days. Over the last three years, 98% of NFOs hit their investment goals within the 60-day period.
With these results in mind, SEBI decided to propose a 60-day limit instead of the initially suggested 90 days. The regulator felt that a shorter timeline would be in the best interest of investors, given that most funds already deploy funds faster.
If SEBI’s proposal is approved, this rule will set a clear standard, encouraging mutual funds to invest collected money more promptly while ensuring a balance between efficiency and flexibility. This change aims to better align mutual funds’ practices with investor expectations for the timely deployment of their investments.
