SEBI Sets Strict Timelines for NFO Fund Deployment

The Securities and Exchange Board of India (SEBI) has issued new guidelines requiring Asset Management Companies (AMCs) to deploy funds raised in New Fund Offers (NFOs) within 30 business days from the date of unit allotment. These rules, effective April 1, 2025, aim to ensure that funds collected during an NFO are used as per the asset allocation mentioned in the Scheme Information Document (SID).

30-Day Fund Deployment Deadline

Under the new rules, AMCs must specify a clear timeline for fund deployment in the SID. All funds raised in an NFO must be deployed within 30 business days. If an AMC is unable to meet this deadline, it must provide a written explanation to the Investment Committee detailing the reasons for the delay and the efforts made to deploy the funds.

Possible Extension in Exceptional Cases

In cases where deployment is not possible within 30 business days, AMCs may seek an extension of another 30 business days, subject to Investment Committee approval. The committee must assess the reason for the delay before granting an extension and review steps taken to resolve the issue.

Restrictions for Non-Compliance

If the funds remain undeployed after 60 business days, SEBI has imposed restrictions:

• The AMC cannot accept fresh investments in the scheme until deployment is completed.
• Investors must be given an exit option without any exit load.
• The AMC must inform all investors about the delay and exit option via email, SMS, or other communication methods.
• Any deviation must be reported to the trustees.

Monitoring and Oversight

Mutual fund trustees will be responsible for making sure that AMCs comply with these timelines. Fund managers are also allowed to adjust the NFO period based on market conditions and asset availability, except in the case of Equity Linked Savings Schemes (ELSS).

SEBI has also introduced a rule to discourage mis-selling of NFOs. If an investor switches from an existing scheme to an NFO of the same AMC, the distribution commission paid will be the lower of the two commissions applicable.

These new rules apply to all NFOs launched after April 1, 2025.

Conclusion

SEBI’s new 30-day fund deployment rule aims to foster greater transparency and accountability within the mutual fund industry. Investors can look forward to a more efficient and reliable investment experience starting April 1, 2025.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual Fund investments in the securities market are subject to market risks, read all the related documents carefully before investing.