SEBI has proposed to set a time limit for the use of funds raised by mutual funds through New Fund Offer. According to the proposal, the funds will have to invest the amount received from NFO in assets as per the scheme within 30 days of allotment of units. In some cases where the asset management company is unable to use the entire amount within this period, it will have to give the reason for this in writing to the investment committee. The investment committee can give 30 more days and can also give recommendations on how to invest this amount further. SEBI has issued a consultation paper on this matter on 30 October in which these recommendations have been given. Public comments have been sought in this regard till 20 November.

 

Why the decision has been taken

The consultation paper states that in some cases it has been observed that there has been a lot of delay in the use of the funds raised through the NFO. The AMC has cited the large size of the amount raised and the volatility in the market as the reason behind this. Currently, there is no time limit for the use of the funds raised through the New Fund Offer. However, there is a time limit for the allocation of units which is 5 days from the closure of the issue. However, no time limit has been set for when this amount should be used further. The regulator admitted that the fund manager should be given some time to use the funds but also said that the AMC cannot keep the money received from the NFO for as long as it wants. Therefore, it is necessary to set a time limit for the use of funds.