SEBI Proposes 30-Day Deadline for NFO Fund Deployment

The Securities and Exchange Board of India, or SEBI, has proposed a 30-day deadline for fund managers to allocate capital collected through mutual fund (MF) schemes during new fund offerings, or NFOs, with the aim of accelerating fund deployment.

Currently, there is no specific time frame for deploying NFO proceeds in accordance with the specified investment strategy.

According to a consultation paper, this deadline may also be stretched to 60 days, and that would come only at the approval from the fund house's investment committee; however, conditions for doing so are, among other things, that there would be "high valuations in particular sectors or market caps, changes in market conditions, geopolitics risks, or paucity of securities issued at a particular maturity.

Further, the asset management companies shall also provide their proposed deployment timeline for putting in the fund in operation within the fund's operating documentation even before its roll-out.

SEBI has also said that in such volatile market conditions, it would make sense for AMCs to "slow down collections initially".

The 30-day deployment period is based on a study by SEBI of NFO deployment data from the last three years. This study reveals that 93% of new funds completed deployment within 30 days, 98% of them completed it within 60 days, while only nine of the 647 schemes took more than that, and five more exceeded 90 days.

The paper further notes, "Considering the huge corpus to be utilized in the post-NFO stage, the scheme managers must be allowed some flexibility to implement according to market conditions. The AMC cannot sit back on the collections from the NFO date and deploy according to asset allocation proposed in the fund. Therefore, the paper recommends a scheme to commit a deployment date."

The open offer for inviting comments ended on November 20.
 
In Conclusion
 
It shall be within the discretion of the investment committee of the fund house to extend up to 60 days for the approval that it seeks, but under conditions alone. The period has been arrived at after taking assistance of the data analysis done by SEBI.

According to the data analysed by SEBI, schemes deploy proceeds of NFO within the first 30 days itself in about 93% of cases.