Winning Bizness Desk
Mumbai.The Securities and Exchange Board of India (SEBI) has introduced a new regulatory framework for asset management companies (AMCs), requiring them to deploy funds raised through new fund offers (NFOs) within 30 days of unit allotment. This rule, effective from April 1, 2025, aims to prevent fund misallocation and delays in investment deployment. Previously, there was no fixed timeline, leading to inefficiencies in fund utilization. SEBI now mandates that AMCs outline realistic fund deployment schedules in their Scheme Information Documents (SID), ensuring alignment with the fund’s asset allocation strategy.
Strict Monitoring and Penalties for Non-Compliance
To ensure compliance, AMCs must justify any deployment delays to their investment committee, which may grant an additional 30-day extension under specific circumstances. However, SEBI has emphasized that extensions should not be granted for schemes with readily available assets. If AMCs fail to deploy funds within the stipulated time, they will face strict penalties, including a ban on accepting new investments in the scheme and the removal of exit load charges for withdrawals after 60 days. SEBI’s move comes in response to delays caused by large fund sizes and market fluctuations, ensuring that investor capital is deployed efficiently and transparently.
New Regulations on Distribution Commissions
To prevent mis-selling of mutual funds, SEBI has also introduced new rules on distribution commissions. AMCs must ensure that commissions for NFOs are lower than those for existing mutual fund schemes during switch transactions. The Association of Mutual Funds in India (AMFI) has been tasked with formulating detailed commission guidelines in consultation with SEBI. These measures are part of SEBI’s broader strategy to enhance investor protection, ensuring fair practices and increased transparency in the mutual fund industry.
Surge in NFOs in 2024
The NFO market has witnessed significant growth in recent years. In 2024, AMCs launched 239 NFOs, raising a total of Rs 1.18 trillion, with sectoral and thematic equity funds being the most popular among investors. This marks a rise from 212 NFOs raising Rs 63,854 crore in 2023 and 228 NFOs garnering Rs 62,187 crore in 2022. The number of NFOs has more than tripled from 81 in 2020, reflecting strong investor confidence and the growing popularity of mutual funds. With SEBI’s new 30-day deployment rule, the regulator aims to enhance market stability, prevent fund misallocation, and ensure that mutual funds operate with greater efficiency and integrity.
