Equity NFOs dwindle amid regulatory heat

New fund offers (NFOs) based on stocks are fast dwindling, thanks to the tough stance taken by the Securities and Exchange Board of India (Sebi) against the lookalike mutual fund schemes from a same fund house.

The first half of the current calendar year has seen a mere nine new equity NFOs from mutual fund houses, managing to raise less than Rs 600 crore. This is in stark contrast to the rush to collect assets through equity NFOs during the bull ride in 2007, when fund houses launched a record 67 equity fund offers.

“There has been a systematic approach to discourage NFOs. The markets regulator has also pointed out consolidation of schemes in the mutual fund industry,” said H N Sinor, chief executive officer, Association of Mutual Funds in India (Amfi).
 

SHRINKING OFFERS
NUMBER OF EQUITY NFOS AND FUND MOBILSATION

YearNo. of
equity
NFOsFund
mobilisation
(Rs cr) 20054831,019.63 20064429,598.80 20076740,353.00 20085112,865.06 2009296,756.11 2010242,193.50 2011*9586.76 * Till 30 June Source: Value Research

The domestic fund industry was riding high on the new launches, which helped the players garner huge assets till 2007. As global markets crashed thereafter, there was a steep fall in fund mobilisation, despite the industry launching 51 more equity products in 2008. However, after that, as new launches failed to gather assets, industry applied brakes on the number of equity NFOs which reached the lowest this year in the first half.

According to the chief marketing officer of SBI Mutual Fund Srinivas Jain: “The overall inflow into the equity category is very low. After launching equity fund offers, it is not possible to expect fund mobilisation (in Monday’s scenario), unless the product is extremely unique, innovative and there is a track record of performance.”

Arindam Ghosh, CEO of Mirae Asset Global Investments (India), agrees. “Industry is going through a structural change. Fund houses are maturing from asset gathering to balanced approach. One needs to have a track record to attract flows and well differentiated products in the market place. Once there is a track record, momentum of flows builds up,” he said.

“Manufacture the product, build up performance and funds will start flowing in. This will ensure a sustainable and orderly growth,” Ghosh adds.

However, it is not only the regulator’s stand on NFOs which pulled down the new launches.

The country’s equity market in the last one year has gone nowhere. Plus, the no load structure continues to haunt selling of equity products, as distributors are not willing to push these products.

Dhruva Chatterji, senior research analyst at MorningStar, which tracks the mutual fund industry says, “The number of equity NFOs and funds mobilised by them is dismal. With subdued performance of the equity markets, inflows in the equity schemes are affected. Moreover, it is difficult to sell equity funds as distributors are not incentivised.”