Capital market regulator SEBI has directed mutual funds to specify the amount it is expecting to collect in a new fund offer based on its ability to deploy within a particular timeframe.
The objective of the new rule is to provide a timeline within which the fund manager can deploy the funds garnered in an NFO as per the required asset allocation of the scheme, said SEBI after the board meeting on Wednesday.
The new framework is aimed to encourage asset management companies to collect only as much funds in NFOs as can be deployed in a reasonable period of time (ordinarily 30 days), since in the open-ended funds investors always have the option to enter the scheme at a later date at the prevailing NAV, it added.
Also read: SEBI permits inter-se sponsor transfers of locked-in units in InvITs, REITs
The new rules provide an option to investors to exit the scheme without exit load in case the fund manager is unable to deploy the fund in the specified timeline.
Further, to address the issue of possible mis-selling in NFOs, for switch transactions, the distributor shall be entitled to the lower of the two commissions offered under the two schemes of the switch transaction, it said.
SEBI has relaxed the regulatory framework related to ‘Alignment of interest of the designated employees of the AMCs with the interest of the unitholders’ to facilitate ease of doing business for Mutual Funds while mandating disclosure of results of stress testing of all mutual fund schemes.
Also read: SEBI tightens norms for SME IPOs, investment bankers
The relaxation also includes the minimum investment, lowered frequency of disclosure, lesser lock-in period for employees who have resigned, empowered Nomination and Remuneration Committee to verify compliances by designated employees, relaxed requirements for employees managing liquid funds and relaxed redemption norms.
Anirudh Garg, Partner and Fund Manager, Invasset PMS said SEBI’s direction requiring MFs to specify the amount to be raised during a NFO will generate a sense of urgency among investors, much like IPOs in the equity markets.
However, he said by capping the amount that can be raised, the regulator is ensuring greater discipline and a sharper focus on fund management.
Much like IPOs, where oversubscription is often seen as a signal of high demand, limited NFO subscriptions might encourage investors to act quickly to avoid missing out. However, it is important to note that the NFO market differs significantly from IPOs. While this directive could create initial excitement and drive demand, the long-term success of NFOs will still depend on the quality of fund management and alignment with investor goals, he said.
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Published on December 19, 2024
https://www.thehindubusinessline.com/markets/sebi-caps-nfo-fund-raise-based-on-mfs-ability-to-deploy/article69003083.ece
