The proposal requires asset managers (AMCs) to allocate funds within 30 days of the close of the NFO, with a possible extension of 30 days upon approval by the committee.
The market regulator’s aim is to increase transparency and protect investors’ interests by reducing the idle time of funds and ensuring alignment with established asset allocations.
Why Sebi sets an implementation timeline
Historically, delays in deploying funds have raised concerns, with investors expecting their contributions to be immediately invested in line with each fund’s objectives.
Sebi’s proposal aims to address these delays by establishing a deployment period of 30 working days, which can be extended by another 30 days in specific cases.
During the review of AMC operations, the regulator noted that certain NFOs were experiencing delays in deployment due to issues such as volatile markets and large fund sizes, hampering efficient allocation of funds.
This timeline is intended to eliminate lengthy holding periods so that investors can benefit from market movements sooner. It also reflects Sebi’s continued efforts to keep pace with the growth and dynamism of the Indian mutual fund industry. This move aims to increase accountability and set a benchmark that AMCs can incorporate into their strategic planning.
Sebi’s motivation behind a fixed timeline
The proposed timeline is part of Sebi’s broader agenda to strengthen regulations for mutual funds, especially NFOs, where delays in fund deployment have led to investors missing out on market opportunities.
Sebi’s analysis of three years of data shows that most funds managed to allocate assets within 60 days of the close of an NFO, with over 90% doing so within the first 30 days. This historical data supports the proposal for an initial timeline of 30 days, expandable to 60 days, giving AMCs some flexibility without compromising investor protection.
This fixed period prevents fund houses from withholding NFO proceeds for extended periods without deployment, ensuring funds are managed actively and efficiently. This also brings Sebi’s policy in line with investor expectations of prompt and disciplined fund management.
Factors contributing to implementation delays
Several factors contribute to delays in the deployment of NFO funds. These include high asset valuations in target markets, limited availability of securities with specific maturity profiles and broader market dynamics. Geopolitical events or unexpected economic shifts could further impact implementation timelines as fund managers adapt strategies to protect investors’ assets.
Sebi’s proposal recognizes these challenges and includes a one-time extension option for AMCs. To obtain an extension, an AMC must submit a reasoned request to its investment committee, which will assess the market-based causes of the delay.
The regulator has emphasized that such extensions should only be granted where liquidity issues or asset unavailability effectively hinder deployment. Furthermore, it suggests that AMCs limit fund collections when suitable investment assets are overvalued or scarce.
Comparison with developed markets
Sebi’s proposed implementation timeline is unique to the Indian regulatory landscape and contrasts with practices in developed markets. In the US, the Securities and Exchange Commission (SEC) requires thorough disclosure and regular reporting, but does not impose a strict deployment period for NFO funds. This approach gives fund managers more flexibility to tailor their strategies to market conditions, without a fixed timetable. Regular disclosures provide transparency without limiting fund managers’ ability to strategically time investments.
Similarly, in the European Union, the European Securities and Markets Authority (ESMA) does not require specific timelines for the deployment of funds under the Undertakings for Collective Investment in Transferable Securities (UCITS) Directive. Instead, ESMA focuses on transparency, requiring periodic disclosures and rigorous communications with investors.
Sebi’s approach differs by prioritizing fixed implementation periods aligned with the expectations and regulatory needs of the growing Indian mutual fund market, where structured timelines are considered essential to boost investor confidence.
Consequences for non-compliance
To ensure compliance, Sebi’s proposal outlines strict consequences for AMCs that fail to meet deployment deadlines. AMCs may not be able to launch new schemes until they allocate NFO funds as per the scheme information document (SID). In addition, they may not be allowed to charge exit fees to investors who want to redeem their units due to delays.
These measures underline Sebi’s commitment to investor protection and set high standards for accountability for fund managers.
Sebi’s commitment to investor protection
The proposed implementation timeline is an example of Sebi’s ongoing mission to strengthen regulatory oversight of India’s financial markets. In recent years, the regulator has introduced several initiatives to improve transparency, accountability and investor protection within the investment fund industry.
From stricter disclosure requirements to improved risk assessment frameworks, the regulatory evolution at Sebi aims to keep pace with India’s growing investor base and the complexity of modern financial markets.
Dr. Simarjeet Singh is an Assistant Professor at Great Lakes Institute of Management, Gurugram. Dr. Hardeep Singh Mundi is an Assistant Professor at IMT, Ghaziabad. The views are personal.
