Capital market regulator SEBI has directed mutual funds to specify the amount it is expecting to collect in a new fund offer based on its ability to deploy within a particular timeframe.
The objective of the new rule is to provide a timeline within which the fund manager can deploy the funds garnered in an NFO as per the required asset allocation of the scheme, said SEBI after the board meeting on Wednesday.
The new framework is aimed to encourage asset management companies to collect only as much funds in NFOs as can be deployed in a reasonable period of time (ordinarily 30 days), since in the open-ended funds investors always have the option to enter the scheme at a later date at the prevailing NAV, it added.
The new rules provide an option to investors to exit the scheme without exit load in case the fund manager is unable to deploy the fund in the specified timeline.
Further, to address the issue of possible mis-selling in NFOs, for switch transactions, the distributor shall be entitled to the lower of the two commissions offered under the two schemes of the switch transaction, it said.
SEBI has relaxed the regulatory framework related to ‘Alignment of interest of the designated employees of the AMCs with the interest of the unitholders’ to facilitate ease of doing business for Mutual Funds while mandating disclosure of results of stress testing of all mutual fund schemes.
The relaxation also include the minimum investment, lowered frequency of disclosure, lesser lock-in period for employees who have resigned, empowered Nomination and Remuneration Committee to verify compliances by designated employee, relaxed requirements for employees managing liquid funds and relaxed redemption norms.
