InvestorQ : What does it mean that SEBI wants all MFs investing in NFOs should only prefer growth option?
Debbie Mascarenhas made post

What does it mean that SEBI wants all MFs investing in NFOs should only prefer growth option?

Answer
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Crowny Pinto answered.
3 months ago


This circular by SEBI pertains to MFs investing in the seed capital of NFOs. They have been asked by SEBI to only buy Growth Plans when investing in seed capital of an NFO. Currently, a fund house is required to invest not less than 1% of the amount raised in an NFO or Rs.50 lakh; whichever is lower. Many AMCs have opted to use the dividend option so that the money comes back to them as dividends quickly. To avoid this practice, SEBI has now insisted that the investment be made in the growth option of the fund, and in cases where growth is not available, it should be made in the dividend re-investment option so that the funds remained locked in and cannot go out through the back door. This will ensure the asset management company’s commitment to a new fund via seed capital and will also ensure long term commitment. AMCs will only be allowed to invest in the dividend option of a NFO if both the growth and dividend reinvestment options were unavailable.