The Securities and Exchange Board of India (SEBI) has introduced new guidelines to streamline the use of funds raised through New Fund Offers (NFOs) by asset management companies (AMCs) and to enhance transparency for mutual fund investors. These steps, approved during a recent SEBI board meeting, are aimed at ensuring better accountability, trust, and operational efficiency in the mutual fund sector.
SEBI has now set a timeline for AMCs to utilize funds raised through NFOs. Fund managers are required to invest the collected funds according to the predetermined asset allocation plan of the scheme, typically within 30 days of the fund’s launch.
This move encourages AMCs to raise only the capital they can deploy within a reasonable period. SEBI has also added an investor-friendly rule: if a fund manager fails to utilize the funds within the specified timeline, investors can exit the scheme without paying any exit load.
SEBI clarified that open-ended funds already provide flexibility for investors to invest later at the scheme’s current Net Asset Value (NAV). Hence, the deployment timeline ensures timely and efficient fund utilization.
To prevent mis-selling of mutual funds during NFOs, SEBI has directed that distributors receive the lower commission of the two schemes involved in a switch transaction. This step aims to create fair practices and protect investor interests.
SEBI has mandated stress testing for all mutual fund schemes. This requires AMCs to disclose stress testing results, offering investors more insight into the financial health and risk levels of their mutual fund investments. Stress testing evaluates how a fund might perform under adverse market conditions, increasing investor confidence and decision-making transparency.
The new measures aim to build trust among investors while providing AMCs with more operational flexibility. By reducing the risk of mis-selling and enhancing disclosure norms, SEBI ensures that investors have access to reliable and transparent information. Additionally, the allowance to exit NFO schemes without exit loads adds another layer of investor protection.
SEBI’s latest guidelines focus on striking a balance between investor protection and operational ease for mutual funds. By enforcing strict timelines for fund deployment, introducing stress testing disclosures, and simplifying rules for AMC employees, SEBI is reinforcing its commitment to a transparent and efficient mutual fund industry. These changes are expected to benefit both investors and fund managers, fostering trust and confidence in the financial markets.
