Last month, two fund houses called off their New Fund Offers (NFOs). They failed to meet the criteria set by SEBI for NFOs.
When a mutual fund scheme is first made available for investment, it is called an NFO. The aim is to accumulate an initial corpus so that the fund manager can build a portfolio.
SEBI has laid out the criteria for NFOs. If all the requirements are not met, the NFO must be called off. Let’s take a look at these rules:
There’s a minimum amount a fund house must collect for an NFO to sail through. For debt and hybrid schemes, it is Rs 20 cr. For all others, it is Rs 10 cr.
At least 20 investors must participate in the NFO. No single investor can hold more than 25% of the corpus.
The duration of an NFO can not exceed 15 days. The ELSS category is an exception.
A fund house launching an NFO must invest in the scheme. Right now, it is 1% of the amount raised during NFO or Rs.50 lakh, whichever is less.
If NFO sails through, investors are allotted units within 5 days. If it is called off, the fund house refunds your money.
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