Liquidity crunch, rise in interest rates, strength in stock market, return to work from office, further interest in NFOs may decrease. Gopal Kavalireddy, head of research at FYERS, said there could be a lot of launches in the Fixed Maturity Plan (FMP) category, but the same cannot be expected from other categories.
Besides, almost all AMCs have introduced new schemes in most of the categories, thereby filling the previously existing product gap which was created after reclassification, he said.
“Differences in investment objectives, investor interest in specific disciplines, availability of funds for deployment, credibility and reputation of fund managers and the performance of stock markets can determine the quantum of new launches,” he said.
According to data compiled by Morningstar India, there were 176 new fund offers (including closed-end funds and ETFs) in 2021-22. They managed to collect a staggering 1,07,896 crore during its inception phase.
This was much higher than the 84 NFOs released in 2020-21 and overall, they were able to raise funds 42,038 crores.
Usually, NFOs come during a rising market when investor sentiment is high and optimistic. The stock market, along with positive investor sentiment, continued to rise post March 2020, leading to higher numbers of NFOs.
NFOs were floated to capitalize on the mood of the investors and attract their investments as they were willing to invest at that time.
Incidentally, in the same period, the Indian capital market SEBI along with the Association of Mutual Funds of India (AMFI) brought about a lot of investor-friendly changes, including exit-load removal, entry-load capping, classification and restructuring of mutual fund schemes . Direct plans, risk-o-meters, new category additions, flexicaps and other policies to create awareness among investors and bring clarity and transparency in investments.
Kavalireddy said that with the need to improve income levels, and long-term investments as well as measures taken by SEBI and AMFI, several categories of mutual funds have been flooded with NFOs.
Most of the schemes were launched in the index and ETF category to support both passive and active investors.
Highest number of funds (49) launched in index fund segment, accumulated 10,629 crore, followed by other ETFs (34), which collected 7,619 crore and fixed term plans (32), which were raised 5,751 crore.
In addition, investors were attracted to international funds and regional or thematic funds. AMC launches foreign fund of funds, which lapsed 5,218 crore and 11 regional or thematic funds raised 9,127 crores.
Experts agree that the dominance of index funds and ETFs (exchange traded funds) within NFOs is not surprising due to a few factors.
In the current financial year 2022-23, only four NFOs were launched, taking the total 3,307 crore, with ICICI Prudential Housing Opportunities Fund taking in the lion’s share 3,159 crores.
Also the latest ban by SEBI on NFOs will delay the launch of around 15 schemes, as the market regulator will streamline the issue of pool accounts, upgrade technology in AMCs, two-factor authentication to avoid potential frauds, and reduce operational risk. focused on reducing Kavalireddy said.
Also, the latest issue of front running of shares in Axis Mutual Fund has given rise to issues of trust and credibility of the fund houses and their respective fund managers.
In April, SEBI had banned the launch of new mutual fund schemes till July 1.
This story has been published without modification in text from a wire agency feed.