In a bid to ensure that the funds raised by mutual fund houses through new fund offers (NFOs) are invested faster, the Securities and Exchange Board of India (Sebi) on Wednesday proposed a timeline of 30 days from the time of allotment of units to investors.
In addition, fund houses will have a window of another 30 days, if required. However, it will need to give reasons in writing for the delay to the investment committee, which can allow an extension, along with recommendations on how this new deadline can be met and a mechanism to track the fund deployment.
At present, asset management companies (AMCs) have 6 months from the date of issuance of final observation by the market regulator with respect to a particular scheme to launch the scheme.
“During examination of the periodic submissions made by AMCs, it was observed that in a certain instance there was a considerable delay in deployment of the funds collected through NFO.The delay was attributed to the size of the funds collected as well as the volatility in the market,” said the Sebi circular.
According to industry players, Sebi’s proposal stems from the fact that most fund houses are raising NFO money in schemes like thematic or other exotic funds. “Both lend themselves to immediate investment because if a fund manager is convinced about a certain sector, say manufacturing, and launching a scheme, he should be able to deploy it within a month unless something dramatic happens causing a sudden spike or fall in stock prices,” said an industry veteran.
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He adds that even in case of a sudden spike or fall, another month is being given to the fund managers. “Only managers who launch schemes like multi-cap funds might face some hurdle, but they are not anyway raising much money, so deployment should not be a problem,” he added.
Sebi added that while it believes that fund managers should be given flexibility to deploy funds according to their view, the AMC should not retain the proceeds for an indefinite period of time. Therefore, a timeline needs to be set for the deployment of funds.
The market regulator held discussions with the industry, and the mutual fund advisory committee had recommended a period of 90 days for deployment.
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