SEBI has issued a Consultation Paper on Specifying Timelines for Deployment of Funds by Asset Management Companies (AMCs) in New Fund Offers (NFOs) proposes a structured timeline for deploying funds collected through NFOs according to each scheme’s asset allocation. The primary aim is to reduce delays in fund deployment and ensure that AMCs align with the asset allocation set out in the Scheme Information Document (SID). This paper, by the Securities and Exchange Board of India (SEBI), is open for public comments to gather perspectives on the proposed framework and improve mutual fund transparency and efficiency.
Objectives and Background
The main objective of this paper is to address concerns arising from AMCs delaying the deployment of funds collected in NFOs. SEBI observed cases where AMCs postponed fund deployment due to market volatility or corpus size, potentially compromising investor interests. SEBI’s regulations allow for a 15-day subscription period for mutual fund schemes, and while funds can be temporarily placed in safe instruments like government securities during this period, there is no explicit deadline for final deployment per the scheme’s asset allocation.
Data analysis shows that 98% of NFOs launched over the last three years achieved asset allocation within 60 days of allotment, indicating a potential to tighten deployment timelines. Delays, SEBI’s investigation revealed, typically stem from factors like high valuations in specific sectors, market volatility, and availability of assets. Given that AMCs are currently not held to a specific timeline post-allotment, SEBI proposes more defined parameters to ensure efficient fund deployment and protect investors’ interests.
Key Proposals
The paper outlines several new guidelines, with a key provision requiring AMCs to deploy NFO funds within 30 business days post-allotment. If an AMC cannot meet this timeline, the case must be presented to the Investment Committee, which may extend the deadline by another 30 business days if justifiable market conditions exist. Here are the main proposals in detail:
- Specified Timelines: AMCs must include achievable timelines in the SID for fund deployment based on asset allocation, which should also be reflected during the NFO process.
- Deployment Deadline: AMCs are mandated to deploy collected funds within 30 days. An additional 30-day extension can be granted by the Investment Committee, but only after examining market conditions and asset availability.
- Penalties for Non-Compliance: Failure to deploy funds within the extended timeframe can lead to sanctions, including a prohibition on launching new schemes and restrictions on levying exit loads on affected schemes. Moreover, any deviation would be reported to the Trustees for transparency.
- Special Provisions for Market Conditions: AMCs may be asked to slow down fund collection during overvalued markets or when asset availability is constrained rather than delay deployment post-NFO.
- Definition of “Short-term” Period: To eliminate ambiguity, the paper suggests defining the term “short-term period,” proposing 30, 60, or 90 days as potential options.
Soliciting Public Feedback
The consultation paper encourages feedback on the suitability of the 30-day deployment deadline, the provision to reduce fund collection in unfavorable markets, and defining the “short-term period.” Public comments are essential to help SEBI finalize guidelines that align with both market realities and investor interests.
