NFOs: SEBI wants mutual fund houses to deploy new fund offer proceeds within 30 days

Regulator wants Sebi Mutual Fund Houses to Invest NFO Proceeds Within 30 Days

New framework to plug loopholes, prevent diversion of funds

The Securities and Exchange Board of India (SEBI) has proposed a new framework to ensure that mutual fund houses deploy the proceeds of new fund offers (NFOs) within 30 days of their closure. The move is aimed at plugging loopholes and preventing the diversion of funds.

Under the current framework, mutual fund houses have up to 90 days to invest the proceeds of NFOs. However, SEBI has observed that some fund houses have been taking advantage of this extended period to invest the proceeds in low-risk, short-term instruments, such as overnight funds or liquid funds.

This practice has raised concerns that mutual fund houses may be using NFO proceeds to boost their short-term performance rather than investing them in the underlying securities of the NFO.

SEBI's New Framework

The new framework proposed by SEBI will require mutual fund houses to invest the proceeds of NFOs within 30 days of their closure, with the exception for NFOs that invest in overseas securities.

For NFOs that invest in overseas securities, the investment period will be 60 days. The regulator has also proposed that mutual fund houses be required to disclose the investment strategy of the NFO in the offer document, including the expected time frame for investing the proceeds.

SEBI believes that the new framework will help to ensure that mutual fund houses invest the proceeds of NFOs in accordance with the stated investment objectives of the scheme.

Impact on Mutual Fund Houses

The new framework is likely to have a significant impact on mutual fund houses. Fund houses will need to revise their investment strategies and processes to ensure that they can deploy the proceeds of NFOs within the stipulated time frame.

The new framework is also likely to lead to increased competition among mutual fund houses, as investors will be more likely to invest in NFOs that have a clear and transparent investment strategy.

Conclusion

SEBI's new framework is a welcome step towards ensuring that mutual fund houses invest the proceeds of NFOs in accordance with the stated investment objectives of the scheme. The move will help to protect investors and promote the development of the mutual fund industry in India.