Asset management companies (AMCs) must invest money received from New Fund Offers (NFOs) within 30 days.
This proposal has been presented by the Securities and Exchange Board of India (SEBI) in a consultation paper. SEBI is seeking public feedback on this idea.
The regulator believes that AMCs should invest the funds promptly, and if they encounter difficulties, they must report to their investment committee. The committee can grant an additional 30 days to invest the funds.
Purpose of SEBI’s Proposal
The main goal of SEBI’s proposal is to reduce delays in using funds. SEBI has noticed that many AMCs take too long to invest the money from NFOs.
Delays can happen due to market changes or the size of the fund. Currently, there are rules on how long an NFO can be open, but there are no rules about how quickly the money received from the NFO must be invested.
Delays in Fund Investments
Presently, when an AMC gets approval for an NFO, it must launch the scheme within six months.
However, data from the last three financial years shows that some AMCs took over 90 days to invest NFO funds. Out of 647 NFOs, 603 managed to invest the money within 30 days.
Feedback Deadline
SEBI’s proposal requires AMCs to invest the money within 30 days of allotment. If they fail to do so, they may face restrictions, including a ban on launching new schemes.
This proposal will affect all funds, except index funds and exchange-traded funds. Public opinions on SEBI’s proposal can be submitted until November 20.