SEBI Introduces New Rules for Mutual Funds Effective April 2025

Mumbai, 3rd March 2025: The Securities and Exchange Board of India (SEBI) has announced significant new regulations for the mutual fund industry, set to take effect on April 1, 2025.

These changes aim to enhance transparency, accountability, and investor protection within the sector. Key among these is the requirement for Asset Management Companies (AMCs) to deploy funds raised through New Fund Offers (NFOs) within a strict 30-day timeline from the date of unit allotment.

This initiative is expected to curb mis-selling practices and ensure that investor money is utilized efficiently.

Under the new guidelines, AMCs will be mandated to outline achievable timelines for fund deployment in their Scheme Information Documents (SID).

If an AMC fails to deploy the funds within the stipulated period, investors will have the option to exit without incurring any exit load.

This provision is designed to prevent AMCs from raising excessive funds that cannot be deployed effectively, thus protecting investor interests.

According to SEBI’s circular, “The AMC shall deploy the funds garnered in an NFO within 30 business days from the date of allotment of units.”

In cases where deployment is not feasible within this timeframe, AMCs may seek a one-time extension of up to 30 additional days.

However, if funds remain uninvested beyond this extended period, investors will be granted an exit option without penalties.

This regulatory change comes in response to concerns about delays in fund deployment that have left investors in limbo. The new rules are expected to improve operational integrity and boost investor confidence in mutual fund schemes.

Additionally, SEBI has directed AMCs to ensure that distribution commissions for NFOs are lower than those for existing schemes during switch transactions, further promoting fair practices within the industry.

Dr. Anil Sharma, a financial analyst based in Mumbai, stated, “These new regulations by SEBI are a much-needed step towards ensuring that mutual funds operate with greater transparency and accountability.

By enforcing strict timelines for fund deployment, investors can have more confidence that their money is being put to work promptly.”

In addition to the deployment timeline, SEBI’s amendments also include provisions for stress-testing disclosures and a requirement for AMC employees to invest a portion of their remuneration in mutual fund schemes.

This alignment of interests is aimed at fostering a more accountable approach within AMCs.

The implementation of these regulations represents a significant shift in how NFOs are managed in India and seeks to create a more robust framework for investor protection.

As the mutual fund industry continues to evolve, these changes are expected to play a crucial role in maintaining stability and trust in the financial markets.

SEBI’s new mutual fund rules mark a pivotal moment for investors and asset management companies alike.

By prioritizing timely fund deployment and enhancing transparency, these regulations aim to safeguard investor interests while promoting responsible practices within the mutual fund sector.