Investors in NFOs get to use ASBA

MUMBAI: Investors in new fund offers (NFOs) of mutual funds will be able to use the Application Supported by Blocked Amount (ASBA) facility starting July 1. The ASBA system, which is currently available to a section of investors in share issues, is an alternative mode of payment where an applicant’s money leaves his bank account only after the shares or units are allotted.

In a circular on Monday, Securities and Exchange Board of India (Sebi) mandated mutual funds (MFs) to provide the ASBA facility to investors in all NFOs launched on or after July 1. The capital market regulator also reduced the NFO period for all schemes, barring equity tax-saving schemes, to 15 days. “It has been decided that the present limit of maximum period of 30 days in case of open-ended schemes and 45 days of close-ended scheme shall be reduced to 15 days, except ELSS schemes,” Sebi said.

The regulator said MFs can use the NFO proceeds only on or after the closure of the NFO period. “The mutual fund should allot units/refund of money and dispatch statements of accounts within five business days from the closure of the NFO and all the schemes, except ELSS, shall be available for ongoing repurchase/sale/trading within five business days of allotment,” it said.

Further, Sebi barred MFs from entering into any revenue-sharing arrangements with offshore funds for investments made on behalf of fund-of-fund schemes, which invest in other funds on grounds that this system created a conflict of interest. “Any commission or brokerage received from the underlying fund shall be credited into the scheme’s account concerned,” the regulator said.

Many MFs, with foreign parentage, have launched ‘fund of fund’ schemes in recent months that invest in an overseas fund, mostly owned by the group. Industry officials said funds planned to launch more such funds, as they managed to fetch a fee from their parent.

Sebi has barred MFs from using unit premium reserve for distribution of dividend. “It is clear from the above regulatory requirements that the unit premium reserve, which is part of unit sale price that is not attributable to realised gains, can’t be used to pay dividend,” it said.

Also, the market regulator has emphasised the need for MFs to play a bigger role in corporate governance matters of listed companies. “AMCs shall disclose their general policies and procedures for exercising the voting rights in respect of shares held by them on the website of the respective AMC as well as in the annual report distributed to unitholders from the financial year 2010-11,” it said.