New NFO rules proposed, fund houses to deploy proceeds within 30 days of issue

New Fund Offer (NFO) News: Capital market regulator Securities and Exchange Board of India (SEBI) on Wednesday proposed several new norms concerning new fund offers (NFOs) of mutual fund schemes. Similar to an initial public offering (IPO), where a company issues shares to the public for the first time, a New Fund Offer (NFO) allows investors to purchase units of a mutual fund before it's listed in the market.

The market regulator has proposed that the draft scheme should be made only 21 days prior to the NFO in order to avoid instances of duplication by rival fund houses which impacts the business of the fund house propagating the idea.

In order to ensure timely investment of NFO proceeds, SEBI has set a 30-day deadline for fund houses to deploy the funds collected through an issue.

Failure to comply with this rule will require the fund house to submit a written response describing the reason for delay.  

A valid reason for delay will allow the NFO additional 30 days to deploy the proceeds. 

However, no further extensions will be permitted, which means that failure to deploy the funds within the maximum permissible duration of 60 days will result in the cancellation of the launch. 

SEBI has also proposed that fund houses should only be allowed to launch an NFO only once funds collected through any existing NFOs are deployed. 

The regulator invited views on a number of aspects including whether 30, 60 or 90 days should be considered short term for mutual funds.

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Meanwhile, the domestic mutual fund industry logged outflows to the tune of Rs 71,114 crore in September, in contrast to inflows of Rs 1.08 lakh crore in the previous month, according to data from industry body AMFI.

The outflows were primarily fuelled by net withdrawals of Rs 1.14 lakh crore from debt schemes.

Equity mutual funds attracted Rs 34,419 crore in September, down 10 per cent sequentially amid a fall in inflows in thematic and large-cap funds.

However, September was still the 43rd consecutive month of inflows.

Monthly contributions through Systematic Investment Plans (SIPs) reached an all-time high of Rs 24,509 crore in September, according to AMFI data. 

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