In exceptional cases, if the fund house is not able to deploy the funds within this timeframe then it should give the reasons in writing to the investment committee.
The committee may extend the timeline by 30 days, while also making recommendations on how to ensure deployment within this timeframe and monitoring it.
Sebi said that if the funds are not deployed as per the asset allocation mentioned in the scheme information document (SID), then asset management companies (AMCs) may not be allowed to launch any new scheme. It may also not be permitted to levy an exit load on investors exiting such schemes after 60 days.
“During the examination of the periodic submissions made by AMCs, it was observed that in a certain instance, there was a considerable delay in deployment of the funds collected through NFO. The delay was attributed to the size of the funds collected as well as the volatility in the market,” Sebi said in a discussion paper on Wednesday.
Currently, there is no regulatory provision specifying the timeline for the deployment of funds after NFO.Considering that the size of the corpus required to be deployed after the NFO could be significantly large, suitable flexibility is required for the fund managers to deploy according to their views on the market. However, the AMC should not retain the proceeds received through NFO, for an indefinite period without deployment in the stated assets, Sebi said.The regulator analysed data for the last three financial years on the number of days taken by AMCs to deploy the funds as per the asset allocation. It observed that, for 603 out of the 647 NFOs of the schemes, AMCs took less than 30 days from the date of allotment of units to achieve the asset allocation as specified in the SID.
It said that 98% of the NFOs of the scheme launched in the last three financial years were able to achieve asset allocation in 60 days or less.
A root cause analysis was carried out to understand the reason for the delay in deployment of funds garnered in NFO and the major reasons included expensive valuation in certain sectors or market capitalisations, market dynamics, uncertainty following geopolitical developments and unavailability of security with specific maturity, Sebi said. The regulator added that if markets become overvalued or there is inadequate availability of desired assets, it is appropriate that instead of delaying the deployment of funds after the NFO, the AMCs should slow down the collection of funds in the first place.
