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SEBI Snaps at NFO Clones

The market regulator is looking to put an end to this MF practice

Fund houses, launching New Fund Offers (NFOs) that have similar features as some of their already existing schemes, might soon be a thing of the past.

Market regulator, the Securities and Exchange Board of India (SEBI) is likely to cut this freedom, which had been exercised by different fund houses till now. The SEBI had taken note of the increasing frequency of resorting to this practise by asset management companies (AMCs).

What’s more, SEBI does not seem to be in a mood to waste time. It has already initiated the process of scrutinizing every NFO that is being launched to see whether they qualify as an entirely new offering, reports Economic Times.

In an earlier meeting with various chief executives of different fund houses, SEBI had made it clear that the disclosure standards of offer documents needs to be improved upon from its present standards, apart from wanting the offer documents to be simple and less technical.

Experts believe that the market regulator is bringing in such proposals to improve the quality of investor communication from AMCs. Through this effort highlighting investment strategies and risks thereof will be revealed properly. This will in turn help investors take better decisions.

Data reveals that there are around 3,000 mutual fund schemes from different AMCs while some others are in the offing.

What this entire thing would translate into is that fund houses would have to make the details available very much in advance for study and they would also have to justify the need for the new offering.

Not only that, the market regulator has also asked for greater accountability and responsibility from trustees of AMCs especially due to their role of being the custodians of investor’s money.

Apart from that before the board certifies a new offering, each trustee will have to evaluate the scheme.

The entire process is in sharp contrast to what happened two years back when SEBI made it mandatory for trustees to give a declaration that the new scheme was different, but trustees just used to give their approvals without any justification thereof.