The Securities Exchange Board of India (“SEBI”), in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with Regulation35(5) and 52 (4A) of SEBI (Mutual Funds) Regulations, 1996 (“MF Regulations”) vide Circular No. SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/23[1], dated February 27, 2025, issued the timelines for deployment of funds collected by Asset Management Companies (“AMCs”) in New Fund Offer (“NFO”) as per the asset allocation of the scheme (“Circular”). The Circular shall come into effect from April 01, 2025.
This Circular has been made in accordance with the amendments made to the MFRegulations dated February 14, 2025, coming into effect from April 01, 2025, with the objective of improving the efficiency in deployment of funds collected through NFOs and to discourage mis-selling.
The key highlights of the Circular are as follows:
I. Timelines for Fund Deployment (Regulation 35(5) of the MF Regulations)
- Specified Timelines in SID: AMCs shall mention achievable timelines for the deployment of funds in the Scheme Information Document (SID) based on the asset allocation specified in the scheme and the funds shall only be garnered during the NFO to match the deployment capacity within these timelines.
- 30 Business Days for Deployment: The AMCs shall ensure the deployment of funds within 30 (thirty) business days from the date of allotment of units.
- Extension in Exceptional Cases: In the event, the AMC may be unable to deploy funds within 30 (thirty) business days, the reasons for the same, including efforts taken to deploy the funds, shall be submitted to the Investment Committee. The Investment Committee may extend the timeline by 30 (thirty) additional business days, but only after investigating the cause of delay. The Investment Committee shall also recommend measures to ensure future deployment within the specified timeline.
- Trustee Monitoring: The Trustees shall be responsible for monitoring fund deployment and shall take necessary actions to ensure that funds are deployed within a reasonable timeframe.
II. Consequences of Non-Deployment (Post-30 Business Days)
If the funds are not deployed as per the asset allocation mentioned in the SID within the prescribed or extended timelines, the following actions shall be taken:
- Restriction on Fresh Flows: The AMC shall not be allowed to accept new investments or fresh flows into the scheme until the said funds are deployed according to the asset allocation specified in the SID.
- No Exit Load: The AMC shall not be permitted to levy an exit load on investors exiting the scheme if the funds have not been deployed within 60 (sixty) business days from the expiry of the deployment timeline.
- Communication to Investors: The AMC shall inform the investors of the option to exit from the scheme without an exit load, via email, SMS, or other similar modes of communication. Additionally, any deviation from the prescribed timelines or asset allocation shall be reported to the Trustees by the AMC.
III. Fund Manager’s Discretion on NFO Period
- Fund managers have the discretion to extend or shorten the NFO period, except for Equity Linked Savings Scheme (ELSS) schemes, based on market conditions, asset availability, and the ability to deploy funds.
- This discretion, however, must comply with the relevant clauses of the Master Circular for Mutual Funds dated June 27, 2024.
IV. Regulation to Discourage Mis-Selling (Regulation 52(4A) of the MF Regulations)
- Commission on Switch Transactions: In the case of a switch transaction to an NFO (from an existing scheme managed by the same AMC), the distribution commission shall be lower than the commissions offered under the 2 (two) schemes involved in the switch.
[1] https://www.sebi.gov.in/legal/circulars/feb-2025/timelines-for-deployment-of-funds-collected-by-asset-management-companies-amcs-in-new-fund-offer-nfo-as-per-asset-allocation-of-the-scheme_92270.html