MUMBAI: The Securities and Exchange Board (Sebi) has cut short the fund deployment time for mutual funds to 30 days raised through new fund offers (NFOs) and has also relaxed regulations regarding the alignment of interests between AMC employees and unitholders.
Additionally, the market watchdog has also mandated disclosure of stress-testing for all mutual fund schemes to provide increased transparency for investors, apart from measures to prevent mis-selling of new schemes by making distributors eligible only for the lower of the two commissions offered under the two schemes involved in a switch transaction, the regulator said in a circular issued on Thursday.
The regulator said the purpose of the new rule is to establish a timeframe for fund managers to utilise the funds raised through an NFO according to the specified asset allocation of the scheme. The new rules now allow investors to exit a scheme sans any exit load if the fund manager is unable to deploy the fund within the specified timeline.
These measures, approved by Sebi board Wednesday, are aimed at improving operational flexibility for mutual funds while also enhancing accountability and trust among investors, the Sebi said.
In terms of deployment timelines, Sebi has specified that fund managers must invest funds collected through an NFO according to the predetermined asset allocation of the scheme, typically within a 30-day timeframe.
The new guidelines are intended to nudge AMCs to raise only as much capital through NFOs as they can feasibly deploy within a reasonable timeframe, typically within 30 days because investors in open-ended funds always have the flexibility to invest in the scheme at a later date based on the current NAV.
The new rules now allow investors to exit a scheme without any exit load if the fund manager is unable to deploy the fund within the specified timeline.
Furthermore, to prevent mis-selling in NFOs, distributors will receive the lower of the two commissions offered under the two schemes involved in a switch transaction.
Sebi has eased the regulatory framework for alignment of interest between designated employees of AMCs and unitholders to simplify operations, while also requiring disclosure of stress-testing results for all schemes. The relaxation encompasses reduced minimum investment requirements, less frequent disclosure obligations, shorter lock-in periods for past employees, increased authority for the nomination and remuneration committees to ensure employee compliance, relaxed criteria for employees overseeing liquid funds, and more lenient redemption policies.