Fund houses happy as NFOs get speedy nod

Time for approving new fund offers down from 6 months to 2 months; MFs have mobilised Rs 4,000 cr from nearly 30 equity NFOs since October last year

Capital market regulator Securities and Exchange Board of India (Sebi) has fast-tracked clearances for new fund offers (NFOs), helping mutual fund houses cash in on the prevailing positive sentiment created by buoyancy in the equities market.

According to industry officials, the time taken by the market regulator to clear NFOs has come down to two-three months from about six months previously.

Thanks to speedy approvals, the Rs 10 lakh-crore domestic mutual fund industry has been able to mobilise around Rs 4,000 crore from nearly 30 equity NFOs since October last year.

The improved speed of clearances, which has coincided with the ongoing market rally, has helped fund houses reap the benefits of a revival in investor interest.

India’s benchmark equities have rallied 42 per cent since August last year.

The more broad-based BSE Smallcap and Midcap indices have gained even more, by 102 per cent and 80 per cent respectively, during this period.

“Sebi has become quite efficient,” said Sundeep Sikka, chief executive officer, Reliance Mutual Fund, when asked about the shorter timeline for NFO clearances. H N Sinor, chief executive at industry body Association of Mutual Funds in India (Amfi), said there are a few administrative issues that need ironing out but overall things have got better than before.

Industry officials, however, said speedier approvals from Sebi do not mean fewer checks and balances while getting NFOs cleared.

“It is not that the regulator has become lenient in clearing our proposals. Stringent processes remain. There, however, is a clear change in the way Sebi used to function in approving our draft proposals,” said a senior executive at one of India’s largest fund houses.

“If the NFO successfully meets Sebi’s requirements, there is no hurdle and the time required comes down sharply," he said.

Giving approvals to NFOs has always been a contentious issue for Sebi. Between 2005 and 2008, an average of 40 new equity offerings used to hit the market every year. However, later Sebi started discouraging NFOs, particularly those which were similar in nature, to curb mis-selling. In the previous three calendar years, the average equity NFOs dropped to just 10 per year.

"There have been times when none of our proposals could get Sebi’s go-ahead. The regulator used to raise a lot of issues, with tight norms in place," says the CEO of a mid-sized fund house.

Fund mobilisation from NFOs has once again started to gather pace this year. More than 20 equity NFOs, which together raised over Rs 2,000 crore, have hit the market so far this year.

Industry officials have hinted that the regulatory officials dealing in mutual funds have a different approach. “Some of the officials are not the same as earlier. Now they have a very straight-forward approach," said an industry official requesting anonymity.

Interestingly, even Sebi is now all praise for the mutual fund industry when it comes to fund performance. Sebi chairman U K Sinha at a recent event complimented the industry for an encouraging show. “On a three- and five-year basis, 85 per cent of equity assets have outperformed the benchmarks,” he said.