SEBI Sets New Rules for Mutual Fund NFOs: Deadline for Fund Deployment and Transparency Measures
New rules have been introduced by the Securities and Exchange Board of India (SEBI) for mutual funds. This rules mainly focuses on the timely use of money collected through New Fund Offers (NFOs). This rules are made to gain investors trust and improve transparency, it will take effect from April 1, 2025.
Deadline for Fund Deployment
It has been advised by SEBI to Asset Management Companies (AMCs) to invest the money which they collected from investors during NFO within a set time frame. This change make sure that no delays will be made and funds will be used according to the scheme’s planned asset allocation. A recent notification confirmed that SEBI would specify the exact time limit for deploying funds.
Earlier, SEBI had suggested in December that fund managers would have to invest the collected money within 30 days. In case of non-deployment of funds during this time, investors can exit their investment without paying an exit load. This measure avoids letting AMCs hold extra funds for long periods of time and presses them to execute their investment strategies in an efficient manner.
SEBI has made compulsory for mutual funds to share stress test results for their schemes. By this investors will be able to understand clearly about the risks involved in different funds. This goals in promoting transparancy in mutual fund industry and improving investor’s confidence.
In order to improve accountability of the AMCs, SEBI has proposed a new rule regarding the investments made by employees of the AMCs. A proportion of the remuneration received by an employee of an AMC depending upon their job or level is required to be invested in mutual fund units. SEBI shall specify the actual proportion as well as in which way it must be made. This act syncs fund manager and employee interests with investors.
The new guidelines discourage AMCs from raising too much money during NFOs, as investors can always invest in open-ended schemes at a later date at the current Net Asset Value (NAV). By the imposition of strict timeframes for fund deployment, SEBI makes sure that mutual fund schemes work easily without any problem.
These changes show that SEBI wants to improve the rules of mutual fund so that both investors and AMCs can benefit from a clear and transparent investment process.
