Sebi amends mutual fund rules; asks AMCs for NFO fund deployment in prescribed time limit

Markets regulator Sebi has amended mutual fund rules asking asset management companies (AMCs) to deploy the money collected from investors through New Fund Offers (NFOs) in a prescribed time limit. Additionally, the regulator has mandated disclosure of stress testing for mutual fund schemes to provide greater transparency to investors.

These measures, to be implemented from April 1, 2025, are aimed at enhancing operational flexibility for mutual funds while ensuring greater accountability and trust among investors.

Regarding deployment timelines, Sebi, in a notification dated February 14 said, "The scheme shall deploy the funds received in the new fund offer within the time period as may be specified by the Board from time to time." This came after the board of Sebi approved a proposal in December asking fund managers to deploy funds collected during an NFO as per the specified asset allocation of the scheme, typically within 30 days.

If funds are not deployed within the specified timeline, investors will have the option to exit the scheme without paying an exit load, the regulator had said.

The framework discourages AMCs from collecting excess funds during NFOs, as investors can invest in open-ended schemes later at the prevailing Net Asset Value (NAV).

To facilitate ease of doing business for asset management companies' employees, Sebi said, "AMC shall invest a percentage of the remuneration of such employees as specified by the board in units of mutual fund scheme based on the designation or roles of the designated employees in the manner as may be specified by the Board." To give this effect, the Securities and Exchange Board of India (Sebi) has amended mutual fund rules.