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nism-series-va-nfo-subscription-period-refund-penalty[ MUTUAL FUND DISTRIBUTORS ]

Under SEBI regulations, what is the maximum subscription period for a New Fund Offer (NFO) other than ELSS, and what interest penalty must the AMC pay to investors if refund of application money is delayed beyond 5 business days from NFO closure?

[ A ]NFO can remain open for a maximum of 15 days; if refunds are delayed beyond 5 business days, the AMC must pay interest @ 15% per annum for the delayed period out of its own funds.[ CORRECT ]

[ B ]NFO can remain open for up to 90 days; refunds must be made within 30 days with no interest penalty.

[ C ]NFO can remain open for 365 days; delayed refunds carry an interest penalty of 2% charged to the scheme NAV.

[ D ]NFO can remain open for 2 days only; delayed refunds are forfeited and transferred to the Sponsor.

Takeaway

Option A is correct: NFO can remain open for a maximum of 15 days; if refunds are delayed beyond 5 business days, the AMC must pay interest @ 15% per annum for the delayed period out of its own funds.

Derivation

Under SEBI guidelines, an NFO (other than ELSS) can remain open for subscription for a minimum of 3 working days and a maximum of 15 days. The AMC must complete the allotment of units or refund of application money within 5 business days from the NFO closure date. If refunds are delayed beyond 5 business days, the AMC is legally liable to pay interest @ 15% per annum for the entire delayed period. This interest must be borne directly by the AMC and cannot be charged to the scheme. This tests NFO regulatory deadlines. A common error is confusing AMC liability with scheme expenses.

Why the others fail

B — NFO can remain open for up to 90 days; refunds must be made within 30 days with no interest penalty.

A 90-day NFO period violates SEBI's 15-day maximum cap, and delayed refunds carry a mandatory 15% annual interest penalty.

C — NFO can remain open for 365 days; delayed refunds carry an interest penalty of 2% charged to the scheme NAV.

NFOs cannot remain open for 365 days, and interest penalties for AMC delays can never be charged to the scheme NAV.

D — NFO can remain open for 2 days only; delayed refunds are forfeited and transferred to the Sponsor.

NFOs must remain open for at least 3 working days (up to 15 days), and investor application moneys can never be forfeited.