Investor First: Sebi clamps down on mis-selling in New Fund Offers
New Fund Offers (NFOs), a system where a fund house sells units of a new scheme.
What are the proposals cleared by Sebi?
The capital markets regulator said that a new fund offer (NFO) of a mutual fund scheme must invest the money it raised within 30 days from the end of the scheme launch period. It also said in the event of a switch from an existing scheme into an NFO, distributors will get the lower commissions of the two schemes.
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View Details» <div data-placement=«Mid Article Thumbnails» data-target_type=«mix» data-mode=«thumbnails-mid» style=«min-height:400px; margin-bottom:12px;» class=«wdt-taboola» id=«taboola-mid-article-thumbnails-116485873»>How does fund deployment in 30 days help unitholders?
This move to cut the period to 30 days from 60 could result in mutual funds raising in its NFOs only as much monay as it deems possible to invest within 30 days. There are several instances where fund managers delay the deployment of funds garnered in NFOs, especially in the thematic segment, because of expensive valuations. Still, they raised money from investors because the theme was red-hot and witnessed a lot of interest, making it a marketing exercise that mostly benefitted distributors. Sebi was concerned that such NFOs benefitted the mutual fund and distributors, while it went against the unitholders' interests. In case the fund house fails to deploy the NFO money within 30 days, investors will have the option to exit the scheme without paying any exit load.
How will the move to tighten distributor commissions during fund switches help unitholders?
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