Capital market regulator SEBI has made it mandatory for mutual funds to deploy the proceeds from new fund offers within 30 days from the date of allotment of units.
In an exceptional case, if the AMC is not able to deploy the funds in 30 business days, reasons in writing, including details of efforts taken to deploy the funds, should be placed before the Investment Committee of the AMC, said SEBI in a circular issued on Thursday.
The circular will come into effect from April 1.
The Investment Committee may extend the timeline by 30 business days while also making recommendations to ensure deployment in 30 business days going forward and monitoring the same.
The Investment Committee has to examine the root cause for delay in deployment before granting approval for part or full extension. Trustees also have to monitor the deployment of funds collected in NFO and take steps to ensure that the funds are deployed in a reasonable timeframe, said SEBI.
In case the funds are not deployed as per the SID within the extended timelines, AMC will not be permitted to receive fresh flows in the same scheme till the asset allocation is completed as per the SID. Fund houses will also stop levying exit loads on the investors exiting such schemes, it added.
In case of non-compliance after 60 business days, the fund house has to inform all NFO investors about the option of an exit from the concerned scheme without an exit load. The new provisions will be applicable to all NFOs, said SEBI.
To effectively manage the fund flows in NFO, the fund manager may extend or shorten the NFO period (except for Equity Linked Savings Scheme), based on market dynamics, availability of assets and ability to deploy funds collected in NFO, it said.
To discourage mis-selling, SEBI said in case of switch transaction to NFO of a regular plan of a mutual fund scheme from an existing scheme managed by the same AMC, the fund house has to ensure that the distribution commission paid is lower of the two schemes of switch transaction.
The detailed guidelines in this regard shall be specified by AMFI, in consultation with SEBI, it said.