Reduced NFO period for MFs may limit market penetration, say distributors  

March 17, 2010

Market watchdog Securities and Exchange Board of India (SEBI) has reduced the timeframe to complete a new fund offer (NFO) within 15 days—for both open-ended and close-ended schemes—in a move to speed up the allotment process. However, according to industry sources, the move will have a negative impact on asset management companies (AMCs) as the marketing of NFOs is a cumbersome and time-consuming process.
 

“SEBI does not give permissions to launch NFOs quickly. It’s a time-consuming process where retail marketing is concerned. It takes four-five days to get the stationery (like the NFO form and prospectus) from the AMC. We have to send thousands of mailers to our clients, out of which we get 30-40 responses. Then our sales executives go and meet them personally. We end up with 15-20 clients,” said a distributor.

After SEBI banned entry load on MFs, distributors have started tightening their purse-strings. Many smaller distributors use book post (a cheaper form of postal delivery for books, documents and printed material) to distribute application forms to their clients, which usually takes three to four days to reach their destinations. While fund houses are currently brainstorming on the new rule and are tightlipped over the issue, distributors are not too elated over the move.

“Asset management companies (AMCs) will have less time on their hands and they can’t spend more on advertisements. The impact will be negative. The bulk of the money comes in the last four days (of the offer), “said a distributor.

“It may be a good move by SEBI, but the regulator should give more time to distribute MFs in smaller towns,” said an IFA.

SEBI has also extended the supported by blocked amount (ASBA) facility for MFs wherein the subscription money will only be debited from the bank accounts of investors once the MF units are allotted. The move doesn’t seem to have much relevance as an NFO is never oversubscribed, unlike an initial public offering.
— Moneylife Digital Team