SEBI, in the circular, asked the asset management companies to mention the timeline in the scheme information document related to the mutual fund regarding the use of the amount and raise the amount through NFO accordingly.
Market regulator SEBI has given an important order to the asset management companies. According to the order of SEBI, asset management companies (AMCs) will have to invest the entire amount raised through the new fund offering (NFO) within 30 days. Currently there is no time limit for investing the amount. This arrangement will come into effect from April 1, 2025.
What is the purpose
The purpose of this step taken by SEBI is to encourage asset management companies to collect only that much amount in NFO which can be used in a reasonable time. Along with this, any mis-selling of NFO of mutual fund is to be discouraged.
What is in SEBI’s circular
SEBI, in a circular, asked asset management companies to mention the timeline in the scheme information document (SID) related to the mutual fund regarding the use of the amount and raise the amount through NFO accordingly. If due to any extraordinary circumstances, the companies are not able to use the amount in 30 business days, then it will have to give the reason in writing to the investment committee of the asset management companies along with the details of the efforts made to use the fund. The committee can extend the timeline by 30 working days. Along with this, it can also make recommendations on how to ensure the use within 30 working days in future and can also monitor it.
Approval was given in December
This amendment comes after the SEBI board of directors approved a proposal in December. In this, fund managers were asked to use the amount collected through NFO as per the asset allocation prescribed under the scheme. The regulator had said that if the funds are not utilised within the stipulated time frame, investors will have the option to exit the scheme without paying any exit charges.
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