The mutual funds industry says the new regulation from the Securities and Exchange Board

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of India (Sebi) asking them to allot units of new funds within five working days from the closure of a new fund offer (NFO) could impact sales of schemes, especially from subscriptions collected from smaller centres.

At present, fund houses can allot the units within 30 days of closure of an NFO. The new rule is applicable from July 1, 2010.

A senior executive of a fund house, who did not wish to be identified, said that it would be very difficult for fund houses to collect money from small towns and then allot the units within a short span of five days. “This would mean that raising money from tier-II and tier-III cities would be very difficult because the time of allotment is too short,” the executive said.

Sebi, in order to make the NFO process efficient, has reduced the NFO period to 15 days from the earlier 30 days in case of open-end schemes and 45 days in case of closed-end schemes. However, the equity-linked savings schemes (ELSS) would continue to be governed by earlier rules.

V K Anand, marketing associate, LIC Mutual Fund, said: “This is another restrictive step on the mutual fund industry. It will be extremely difficult to allot units within five working days, more so from money invested from smaller towns,” he said.

Anand said a reasonable time of 10-15 days should have been given to fund houses to complete the procedure.

Dhirendra Kumar, CEO, Value Research, a mutual fund tracker, said the new requirement is tough. “This would make NFO sales in tier-II and tier-III cities all the more difficult,” he said.