Investors give a miss to equity NFOs

Seven launches in FY12 garner just Rs 354 cr stringent norms from Sebi force fund players to reduce the number of offers

New launches in the equity mutual fund space are getting lukewarm response from investors. The situation is so bad the fund industry could not even raise one per cent of the amount it mobilised during the peak period of 2005-06.

So far in the current financial year, only seven new fund offers (NFOs) in the equity segment hit have the market, garnering a paltry sum of Rs 354 crore. Stringent norms from the market regulator forced fund players to reduce the number of NFOs to as low as one-fifth of that launched during 2005-2007.

Players who dared to launch NFOs in tough equity market conditions failed to get good response from investors. Most new launches have been from the newer fund houses, which are in their initial phase of building product baskets. These include Peerless Mutual Fund, Union KBC, Edelweiss and Indiabulls AMC.

For instance, Indiabulls Blue Chip Fund is the latest in the equity category. The fund, launched in February, could barely collect Rs 13 crore. Prior to this, Edelweiss and Peerless too, launched their first equity funds, but ended up garnering only Rs 6 crore and Rs 24 crore, respectively. Even an established player like Tata Mutual Fund failed to impress investors with its retirement savings fund ended by mobilising funds of worth only Rs 10 crore.

Only two equity launches did reasonably well, those of Sundaram Mutual Fund and Union KBC, collecting Rs 125 crore each. But compared to the average fund-raising of Rs 950 crore by each new launch back in 2006, the current mobilisation stands nowhere. Calendar year 2006 saw the industry launching 39 equity NFOs, which collected Rs 36,741 crore. “There are multiple factors which impacted new launches,” says the chief executive officer (CEO) of a fund house which recently launched its first equity scheme. “The overall equity market sentiments were poor and investors did not want to take risks in equities when other avenues offered better.”

This fund house had been waiting for long to launch its scheme, but the scenario only worsened further.

According to experts, newcomers have no option but to launch different funds. Only the current situation is not helping them. Another CEO notes it took his company long to get a green signal from the Securities and Exchange Board of India. “So much so, we wasted no time after getting the permission and launched our scheme,” he recalls. “Investors will take time to come back to equities.”

But it is not that money is not coming only to equity NFOs. Established schemes from older players’ are also finding it hard to attract funds in such markets.

Dhruva Chatterji, senior analyst at Morningstar India, says the abolition of entry load has killed equity NFOs. “Plus, the equity market condition has not been conducive,” he notes. “The cost structure is another issue preventing fund managers from launching new schemes. They are not able to recover marketing and distribution expenses.”