The Securities and Exchange Board of India (SEBI) has set timelines for the investment of funds raised through New Fund Offers (NFOs) by asset management companies (AMCs). It also aims to improve the regulatory framework to align the interests of AMC employees with those of unitholders. Additionally, SEBI has made it mandatory for all mutual fund schemes to disclose pressure testing, ensuring more transparency for investors. Throughout this article, we will provide you with all the information regarding this new rule.
The proposals were approved in a meeting of SEBI’s board of directors on Wednesday. The goal is to improve the efficiency of mutual fund operations and build more accountability and trust with investors. Regarding timelines, SEBI stated that fund managers must invest the funds raised from NFOs within 30 days, following the specified asset allocation of the scheme.
Investors’ Facility Under New SEBI Rules
SEBI stated that if the funds are not invested within the stipulated time frame, investors will have the option to exit the scheme without any exit load. This change discourages asset management companies (AMCs) from raising additional money during the NFO, as investors can later invest in open-ended schemes at the Net Asset Value (NAV).
SEBI mentioned, “The purpose of the new framework is to encourage AMCs to raise only as much money as can be invested within a reasonable time frame (usually 30 days), as investors always have the option to enter the scheme later at NAV.”
Rules on ‘Switch’ Transactions
To address potential miss-selling issues in NFOs related to ‘switch’ transactions (transferring funds from one mutual fund to another), SEBI stated that distributors will be eligible for the lower of the two ‘commissions’ offered under the two schemes involved in a ‘switch’ transaction.
Simplification of Redemption Rules
SEBI has decided to reduce the minimum investment amount required for designated employees, shorten the period for compliance-related disclosure, and relax requirements for employees managing cash funds. The regulator has also simplified redemption norms.
Additionally, SEBI announced that the ‘lock-in’ period on investments for employees who resign will be reduced. A dedicated committee will now monitor compliance by designated employees.
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