The Securities and Exchange Board of India (Sebi) Wednesday proposed changes in the regulatory filing procedure of new fund offers (NFOs) by mutual funds in a move aimed at protecting the innovative ideas being proposed by a fund house in its new scheme.
As per a proposal, if a fund house comes out with an innovative scheme with new features, the regulator will allow it to maintain the secrecy and the scheme information document (SID) will be available in the public domain only five working days before the scheme’s launch. In a consultation paper issued Wednesday, Sebi proposed that the asset management company (AMC) can submit the initial draft of SID only to the Sebi.
The existing system has led to concerns that it allows competitors to replicate the investment ideas. Currently, an AMC has to upload the so-called draft SID ahead of the launch of NFO. The SID contains all the vital information of the new fund.
“It has been observed that once a draft SID proposing a new product is uploaded on the Sebi website, other AMCs tend to follow suit. At times, this leads to a situation where the NFO of an AMC which followed suit precedes the NFO of AMC that conceived the idea, and the AMC proposing the new product loses its first-mover advantage,” Sebi said.
“Further, SID processing time has reduced significantly… SEBI observation letters are issued within 21 working days from the date of receipt of application,” it said.
In another consultation paper, Sebi said AMC should specify achievable timelines in the SID regarding the deployment of the funds as per the specified asset allocation of the scheme and should garner funds during the NFO accordingly.
“AMCs may be mandated to deploy the funds garnered in NFO within 30 business days from the date of allotment of units. In exceptional cases 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, should be placed before the Investment Committee,” the Sebi paper said.
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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 should examine the root cause before approving part or full extension, the regulator said.