In the wake of intense retail investor interest and a sharp rally in the equity market, asset management companies (AMCs) have launched 176 new fund offerings (NFOs) in 2021-22, earning Rs 1.08 trillion.
Liquidity constraints, rising interest rates, stock market consolidation, return to work from office, and interest in NFOs may be declining. While there could be substantial launches in the Fixed Maturity Plan (FMPs) category, the same cannot be expected from other categories, said Gopal Kavalireddi, head of research at FYERS.
Also, almost all AMCs have introduced new schemes across most of the departments, filling the gaps of the existing products created after reclassification, he said.
“The gap between investment objectives, investor interest in specific themes, availability of funds for deployments, credibility and reputation of fund managers and performance of the stock market can determine the amount of new launches,” he added.
According to data compiled by Morningstar India, there were 176 new fund offers (including close-end funds and ETFs) in 2021-22. These were able to raise Rs 1,07,896 crore at their initial stage.
This was more than the 84 NFOs in 2020-21 and increasingly, these funds were able to raise Rs 42,038 crore.
Typically, NFOs come at a time of rising markets when investor sentiment is high and optimistic. With positive investor sentiment, the stock market continues to grow after March 2020, leading to the introduction of a large number of NFOs.
NFOs were created to capitalize on the mood of investors and to attract their investment because they were willing to invest at that time.
Coincidentally, over the same period, the Indian capital market SEBI and the Association of Mutual Funds of India (AMFI) have made significant investor-friendly changes, including exit-load removal, entry-load capping, classification and restructuring of mutual fund schemes, direct planning. O-meters, new category additions, Flexicap and other policies, thus bring investor awareness and transparency and openness in investing.
With the need to improve income levels, and the long-term investment outlook, the steps taken by Sebi and Amfi have resulted in a surge in NFOs in many mutual fund sectors – equity and debt alike, Cavalierdi said.
Most of the schemes were launched in the index and ETF sections to support passive and active investors.
The highest number of funds (49) were launched in the index fund segment, which raised Rs 10,629 crore, followed by other ETFs (34), which raised Rs 7,619 crore, and permanent-term plans (32), which raised Rs 5,751 crore.
In addition, investors were attracted to international funds and sectoral or thematic funds. AMCs have launched foreign-funded funds, raising Rs 5,218 crore and 11 sectoral or thematic funds, raising Rs 9,127 crore.
Experts believe that the dominance of index funds and ETFs (exchange-traded funds) among NFOs is not surprising, due to a number of factors. In the current financial year 2022-23, only four NFOs have been launched, raising a total of Rs 3,307 crore, with ICICI Prudential Housing Opportunity Fund taking the lion’s share of Rs 3,159 crore.
SEBI’s recent ban on more NFOs will delay the introduction of about 15 schemes, as market regulators are focusing on two-factor authentication, among others, to ease the problem of pool accounts, upgrade technology to AMC, reduce operational risk and avoid potential fraud. , Cavalireddi said.
Also, the recent issue of stocks in Axis Mutual Fund has raised issues of trust and credibility of the fund houses and their respective fund managers, he added. In April, SEBI blocked the introduction of new mutual fund schemes till July 1.