MF equity new fund offers hit 11-year low

New launches could garner a paltry sum of Rs 477 cr

New fund offers (NFOs) of diversified equity mutual fund schemes have fallen to an eleven-year low. Strict guidelines from the Securities and Exchange Board of India (Sebi), coupled with uncertain market conditions, dried the NFO route.

Between 2005 and 2008, NFOs were vital for mobilising large sums in the equity segment. During this period, the mutual fund industry launched 171 equity NFOs, garnering a whopping Rs 1.12 lakh crore.

For mutual fund players seeking to mop up thousands of crores in a short period, the NFO route was the favourite. Now, however, that seems to be history. Consider this: In 2012, the total number of pure equity NFOs declined to seven, against 10 the previous year. And, together, these launches could only garner a paltry sum of Rs 477 crore, 1.5 per cent of what the sector garnered during its peak NFOs phase.

The last equity fund launch was that of Goldman Sachs India Equity Fund (November, 2012), which mobilised Rs 67 crore. Companies that launched new funds last year include Axis Mutual Fund, ICICI Prudential, Baroda Pioneer, IIFL, Taurus and Indiabulls MF.

Dhirendra Kumar, chief executive of fund-tracking firm Value Research, says, "All the established players do not need to launch new funds, while the new players do not have the appetite for it. Moreover, unless a fund house reaches a threshold of Rs 10 crore, it needs to return the money. Players are finding no economic sense in launching NFOs."

Industry executives say now, investors are smarter than ever before - they want a track record, not a cheap unit of Rs 10. Launching a new scheme needs deep pockets and during uncertain times, no one wants to take the NFO route, they add.

Akshay Gupta, chief executive and managing director of Peerless Mutual Fund, says, "There is no commission on new launches. So, who would sell them? Also, Sebi is not approving new products, as the regulator wants a clear-cut differentiation between products, not a repeat of similar products."

Currently, the mutual fund industry offers 293 diversified equity schemes and has Rs 1.52 lakh crore of assets under management in the pure equity segment.