SEBI directs Mutual Fund to deploy funds within 30 days of NFO
Economy
5 min read
Securities and Exchange Boards of India (SEBI) has directed for the asset management company (AMC) of the mutual fund to invest the money collected from investors through new fund offer (NFO) within 30 business days from the date of allotment of the scheme units. Currently, there is no time limit for deploying the funds collected through NFO.
The latest directive of SEBI is seen as an effort to stop mis-selling of NFOs by the mutual funds, and discourage them from raising excess funds from the public.
Asset management company (AMC) approved by SEBI manages the funds raised from the public through NFO.
From when will it come into force?
- The latest SEBI directive will be applicable from 1st April 2025.
Main Points of SEBI Directive
- The AMC in the Scheme Information Document (SID) of a mutual fund scheme will have to specify the period during which it will deploy the funds collected from the investors.
- The money collected from the investor has to be invested within 30 business days from the date of allotment of the scheme units.
- If the AMC fails to deploy the funds within 30 business days, it will have to give its reason in writing to the AMC's investment committee.
- If the AMC investment committee is satisfied, then it can extend the timeline by another 30 business days.
- If the AMC fails to deploy the fund within the extended period, it cannot accept fresh public investment in the scheme until it deploys the fund as mentioned in its SID.
- AMCs cannot levy exit load on the investors exiting such a scheme due to the AMC's non-compliance with deploying the funds.
- SEBI has made the mutual funds Trustees responsible for monitoring the deployment of funds collected in NFO.
Regulator of the Mutual Fund
- The Securities and Exchange Board of India (SEBI) regulates the Mutual funds in India.
Mutual Fund, Trustee and AMC
Mutual Funds are market intermediaries that pool the savings of the public and invest in the money market or capital market instruments as per the investment objectives mentioned by the mutual fund.
The pioneer of the mutual funds in India was the Unit Trust of India.
The Unit Trust of India was set up by an Act of Parliament in 1963.
In 1964, the UTI launched India’s first mutual fund scheme, Unit Scheme 1964 (US 64).
Trustee
- The mutual funds are Trust set up under the Indian Trust Act, 1882. The trust is established by a sponsor, for example, State Bank of India sponsors SBI Mutual fund.
- The trust members, also called trustees, are vested with the general power of superintendence and direction over AMC.
- They are responsible for monitoring the performance of the mutual funds and to ensure compliance with SEBI Regulations on the mutual fund.
New Fund Offer (NFO)
- When the AMC offers the unit of a mutual fund scheme to the public for the first time, it is called an NFO.
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