The AMC will now have to specify achievable timelines in the Scheme Information Document (SID) of a scheme regarding the deployment of the funds, said the circular.
Mutual funds will now have to give a reasonable timeframe within which they will deploy funds collected through new fund offers (NFOs) and ensure that the funds are deployed within 30 business days from the date of allotment of units, said a SEBI circular on Thursday.
Trustees have been asked to ensure that the funds are deployed within a reasonable timeframe.
In the circular issued on February 27, the Securities and Exchange Board of India (SEBI) said that amendments have been made to SEBI (Mutual Funds) Regulations to encourage asset management companies (AMCs) to collect only as much funds in NFOs as can be deployed in a reasonable period of time and to discourage any mis-selling of NFOs of the mutual fund schemes.
Following this, the regulator has issued these directions on the deployment of funds by AMCs.
The AMC will now have to specify achievable timelines in the Scheme Information Document (SID) of a scheme regarding the deployment of the funds as per the specified asset allocation of the scheme and garner funds during the NFO accordingly.
It will also have to deploy funds within 30 days from allotment of units. If the AMC is unable to deploy funds within these 30 days, it should place before its Investment Committee the reasons for this in writing and the details of efforts taken to deploy the funds.
The Investment Committee can extend the timeline by 30 business days, while also making recommendations on how to ensure deployment within 30 business days going forward and monitoring the same. The Investment Committee should examine the root cause for delay in deployment before granting approval for part or full extension.
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The Investment Committee should not ordinarily give part or full extension where the assets for any scheme are liquid and readily available, said the circular.
In case the funds are not deployed as per the asset allocation mentioned in the SID as per the aforesaid mandated plus extended timelines, AMC shall:
i. not be permitted to receive fresh flows in the same scheme till the time the funds are deployed as per the asset allocation mentioned in the SID.
ii. not be permitted to levy exit load, if any, on the investors exiting such scheme(s) after 60 business days of not complying with the asset allocation of the scheme.
iii. inform all investors of the NFO, about the option of an exit from the concerned scheme without exit load, via email, SMS or other similar mode of communication.
iv. report deviation, if any, to Trustees at each of the above stages