After a three-month hiatus, new fund offerings (NFOs) made a strong comeback with asset management firms launching more than two dozen mutual fund programs in July.
New funds were launched at all levels – actively managed equity funds, debt, index funds and exchange-traded funds (ETFs). Interestingly, passively managed funds, especially ETFs, continue to dominate the NFO market.
There was a lull in the NFO space as the Securities and Exchange Board of India (Sebi) in April banned fund companies from launching new programs until the industry complied with its standards. regarding the pooling of investors’ funds through intermediaries and distributors. The deadline for implementing the new guideline was July 1.
In addition, the regulator had asked fund companies to implement guidelines such as double authentication for redemption, account source verification when investing in mutual funds. These measures were intended to protect the interests of investors and to enhance investor confidence in mutual fund investments.
According to industry data, as many as 18 asset management companies (AMCs) launched a total of 28 mutual fund programs in July. Of the 28 NFOs, 24 are ongoing and the other four have been closed.
NFOs, which are ongoing, include ICICI Prudential Nifty IT Index Fund, Aditya Birla Sun Life Nifty 200 Quality 30 ETF, Baroda BNP Paribas Flexi Cap Fund, Canara Robeco Banking and PSU Debt Fund.
In addition, DSP Nifty Midcap 150 Quality 50 Index Fund, HDFC Nifty 100 ETF, Motilal Oswal S&P BSE Quality Index Fund, IDFC Midcap Fund, Mirae Asset Balanced Advantage Fund, Quantum Nifty 50 ETF Fund of Fund, Union Gilt Fund and quant Large Cap Fund are ongoing.
In addition, half a dozen NFOs, including one from Franklin Templeton MF which is launching a new program after a two-and-a-half-year hiatus, have been lined up for next month.
Amar Ranu, head of investment products and advisory at Anand Rathi Shares & Stock Brokers, said most recently launched NFOs sought approval from the capital markets regulator long before the 3-month ban.
“Now there’s a huge rush among AMCs to fill their buckets with passive index funds or ETFs and they don’t want to lose their passive share in the absence of funds,” he said.
In addition, the lack of alpha generation by actively managed funds relative to the benchmark has led sophisticated or institutional investors to shift part of their portfolio to passively managed funds, he added.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, has noticed increased interest in ETFs from investors and fund companies.
Several ETFs have been launched in recent years and many of these NFOs are either sector or thematic.
Additionally, Ranu believes that factor investing is growing very rapidly in India, which has seen some success with existing Nifty 200 Momentum 30 index funds which have quickly garnered assets under management (AUM) due to the unique positioning of the product. .
The AMCs try to complete their basket of products and launch funds according to their needs.
In several cases, the NFOs that are launched and likely to be launched are where there are existing fund houses that complement their product line by adding to categories where they are not present, Board Member Vishal Dhawan of Directors, Association of Registered Investment Advisors, said.
NFOs are also being launched where interest rates are locked in as yields have risen, or where new fund companies can now start launching their programs, he added.
NFOs lead to good investor participation and also increased distributor activity.
Sebi’s diktat has impacted the launch of new programs as the current financial year 2022-23 to June saw the introduction of just four NFOs which raised a total of Rs 3,307 crore, with ICICI Prudential Housing Opportunities Fund taking the lion’s share of Rs 3,159 crore.
In 2021-2022, AMCs launched 176 new mutual fund schemes earning Rs 1.08 lakh crore – meaning an average of less than Rs 15 per month. In 2020-2021, 84 NFOs were launched and cumulatively, these funds were able to mobilize Rs 42,038 crore. Going forward, there will be a slew of new debt and equity fund launches with passive strategies leading the way, said Nitin Rao, Head Products & Proposition, Epislon Money Mart.
“Additionally, we will continue to see growth in passive fixed income funds and longer-term or longer-term debt funds as rates have risen and may provide an attractive opportunity for investors,” said Radhika Gupta, MD. and CEO of Edelweiss AMC. .
Dhawan of the Association of Registered Investment Advisors suggested investors consider new mutual fund regimes only when the options available in those mutual fund categories are limited, or if there is something particularly unique that a particular NFO offers. New programs can be considered once they have established a balance sheet.