Timelines for deployment of funds collected by Asset Management Companies - 27th February 2025 - Securities and Exchange Board of India - Gazette Notification PDF
Issued by Securities and Exchange Board of India
Capital Markets And Securities
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Read or download the official PDF of this gazette notification issued by the Securities and Exchange Board of India on 27th February 2025.
Executive Summary & Key Takeaways
Executive Summary: This circular, effective April 1, 2025, outlines new timelines for Asset Management Companies (AMCs) to deploy funds collected during New Fund Offers (NFOs) and addresses potential misselling. AMCs must specify achievable deployment timelines in the Scheme Information Document (SID) and deploy funds within 30 business days. The circular also addresses distribution commissions for switch transactions to NFOs.
Key Points / Main Content:
Deployment Timelines:
- AMCs must specify fund deployment timelines in the SID.
- Funds garnered in an NFO must be deployed within 30 business days from the date of unit allotment.
- If deployment within 30 business days is not possible, the Investment Committee can extend the timeline by 30 business days with written justification and recommendations.
- Trustees must monitor fund deployment and ensure it occurs within a reasonable timeframe.
Consequences of Non-Compliance:
- If funds are not deployed within the mandated timelines, the AMC will be restricted from receiving fresh flows into the scheme.
- Exit loads cannot be levied on investors exiting the scheme after 60 business days of non-compliance.
- Investors of the NFO must be informed about the option to exit the scheme without exit load.
- Any deviation must be reported to the Trustees.
NFO Management:
- Fund managers can adjust the NFO period (except for ELSS schemes) based on market dynamics and fund deployment capabilities, subject to existing regulations.
Switch Transaction Commissions:
- For switch transactions to an NFO, the distribution commission paid must be lower than or equal to the commissions offered under the existing scheme from which the funds are being switched.
- AMFI will specify detailed guidelines in consultation with SEBI.
Impact Analysis
Mutual Funds, AMCs, Trustee Companies, Boards of Trustees:
- Impact: Affected by new regulations regarding fund deployment timelines and potential restrictions for non-compliance.
- Action Required: Update internal processes to ensure compliance with deployment timelines, monitor fund deployment, and adjust NFO management strategies.
Investors:
- Impact: Protected by measures discouraging misselling and ensuring timely fund deployment.
- Action Required: Be aware of the option to exit NFOs without exit load if deployment timelines are not met.
Mutual Fund Distributors:
- Impact: May experience changes in commission structures for switch transactions.
- Action Required: Adhere to new guidelines on distribution commissions for switch transactions to NFOs.
AMFI:
- Impact: Responsible for specifying detailed guidelines on distribution commissions for switch transactions in consultation with SEBI.
- Action Required: Develop and communicate detailed guidelines on distribution commissions for switch transactions.
Registrars to an Issue and Share Transfer Agents (RTAs):
- Impact: Indirectly impacted through the need to support AMCs in complying with reporting and communication requirements related to fund deployment.
- Action Required: Ensure systems and processes are in place to support AMCs in tracking and reporting fund deployment timelines and communicating with investors.
Key Entities Referenced
Securities and Exchange Board of India SEBI: Regulatory body for securities market in India, responsible for issuing the circular.
Mutual Funds MFs: Collective investment schemes that pool money from many investors to purchase securities.
Asset Management Companies AMCs: Companies that manage investment funds on behalf of investors.
New Fund Offer NFO: The initial offering of a new scheme by a mutual fund.
SEBI Mutual Funds Regulations, 1996 MF Regulations: Regulations governing the operation and management of mutual funds in India.
Association of Mutual Funds in India AMFI: Industry body for mutual funds in India.
Scheme Information Document SID: A document containing the details of a particular mutual fund scheme.
Equity Linked Savings Scheme ELSS: A type of mutual fund scheme that offers tax benefits.
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CIRCULAR
SEBI/HO/IMD/IMD-PoD-1/P/CIR/2025/23 February 27, 2025
To All,
Mutual Funds (MFs)/
Asset Management Companies (AMCs)/
Trustee Companies/ Board of Trustees of Mutual Funds/
Association of Mutual Funds in India (AMFI)/
Registrars to an Issue and Share Transfer Agent (RTAs)
Madam/ Sir,
Sub: Timelines for deployment of funds collected by Asset Management Companies
(AMCs) in New Fund Offer (NFO) as per asset allocation of the scheme
1. With an objective to encourage AMCs to collect only as much funds in NFOs as can be
deployed in a reasonable period of time and to discourage any mis-selling of NFOs of
the mutual fund schemes, certain amendments to SEBI (Mutual Funds) Regulations, 1996
(‘MF Regulations’) were carried out and notified through the notification dated February
14, 2025 (link to the Gazette notification). The said amendments shall be applicable from
April 01, 2025.
2. Accordingly, in terms of Regulation 35 (5) of MF Regulations, it has been decided that the
following shall be ensured in respect of deployment of funds collected by an AMC in an
NFO:
a) The AMC shall specify achievable timelines in the Scheme Information Document (SID)
of a scheme regarding the deployment of the funds as per the specified asset allocation
of the scheme and garner funds during the NFO accordingly.
b) The AMC shall deploy the funds garnered in an NFO within 30 business days from the
date of allotment of units.
c) In an exceptional case, if the AMC is not able to deploy the funds in 30 business days,
reasons in writing, including details of efforts taken to deploy the funds, shall be placed
before the Investment Committee of the AMC.
Page 1 of 3d) The Investment Committee may extend the timeline by 30 business days, while also
making recommendations on how to ensure deployment within 30 business days going
forward and monitoring the same. The Investment Committee shall examine the root
cause for delay in deployment before granting approval for part or full extension. The
Investment Committee shall not ordinarily give part or full extension where the assets
for any scheme are liquid and readily available.
e) Trustees shall monitor the deployment of funds collected in NFO and take steps, as may
be required, to ensure that the funds are deployed within a reasonable timeframe.
f) In case the funds are not deployed as per the asset allocation mentioned in the SID as
per the aforesaid mandated plus extended timelines, AMC shall:
i. not be permitted to receive fresh flows in the same scheme till the time the funds
are deployed as per the asset allocation mentioned in the SID.
ii. not be permitted to levy exit load, if any, on the investors exiting such scheme(s) af-
ter 60 business days of not complying with the asset allocation of the scheme.
iii. inform all investors of the NFO, about the option of an exit from the concerned
scheme without exit load, via email, SMS or other similar mode of communication.
iv. report deviation, if any, to Trustees at each of the above stages.
g) The above provisions shall be applicable to all NFOs.
h) To effectively manage the fund flows in NFO, the fund manager may extend or shorten
the NFO period (except for Equity Linked Savings Scheme (ELSS) schemes), based on his
view of the market dynamics, availability of assets and his ability to deploy funds
collected in NFO. However, the same shall be subject to compliance with Clause 1.10.1
and 1.10.1A of the Master Circular for Mutual Funds dated June 27, 2024.
3. In order to discourage mis-selling of mutual funds schemes by Mutual Fund Distributors, in
terms of Regulation 52 (4A) of the MF Regulations, in case of switch transaction to NFO of
a regular plan of mutual fund scheme from an existing scheme managed by the same
AMC, the AMC shall ensure that the distribution commission paid is lower of the
commissions offered under the two schemes of switch transaction. The detailed guidelines
in this regard shall be specified by AMFI, in consultation with SEBI.
4. This circular shall come into effect from April 1, 2025.
Page 2 of 35. This circular is issued in exercise of the powers conferred under Section 11(1) of the
Securities and Exchange Board of India Act, 1992 read with Regulation 35(5) and 52 (4A) of
MF Regulations, to protect the interest of investors in securities and to promote the
development of, and to regulate the securities market.
6. This circular is available at www.sebi.gov.in under the link “Legal ->Circulars”.
Yours faithfully,
Peter Mardi
Deputy General Manager
+91-22-26449233
peterm@sebi.gov.in
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