MF new equity offerings face drought in September

Capping of commissions, volatile markets take a toll on new launches

New fund offers (NFOs), a popular money mobilising tool for the mutual fund houses, saw a virtual halt in September. Capping of commission paid to distributors, along with sharp increase in market volatility saw the the Rs 13 lakh crore-fund management industry launch just one NFO last month, which mopped up a meager sum of Rs 20 crore.

In comparison, around 47 new equity schemes were launched by the MF industry, which helped garner assets worth around Rs 7,709 crore. Last year, the Indian market had seen launch of a record 75 NFOs.

NFOs have been on a downward spiral since April when the curbs on commissions kicked in. Also, market regulator Securities and Exchange Board of India (Sebi) has been discouraging fund houses from launching new schemes unless unique and different from existing schemes. First six months of this fiscal saw average NFO of less than three a month, while an average 10 new schemes were launched in first three months.

"Many factors have contributed to shrinking of NFOs. The regulator is quite watchful and does not want similar kind of schemes. Also, as awareness is rising distributors prefer to sell schemes which have a reasonable track record," said Ajit Menon, executive vice president at DSP BlackRock Mutual Fund.

Data also suggests investors are preferring existing schemes over new schemes. Gross sales of existing equity schemes so far this calendar year is around Rs 1,18,000 crore. On the other hand, funds raised through new launches are just around Rs 7,700 crore.

"Markets have been quite subdued for last couple of months. Investors' awareness is relatively better and they want track record," said Hemant Rustagi, CEO of Wiseinvest Advisors.

Bulk of the new schemes launched by fund houses were in close-ended in nature, where the commissions paid to distributors was as much as 8 per cent. The high commissions drew criticism. With effect from April 2015, industry body Association of Mutual Funds in India (Amfi) at the behest of Sebi, capped upfront commissions at 1 per cent. Following which NFOs lost favour from distributors and hence fund houses.

"Lower number of NFOs is a reaction to curbs on commissions as interest of one of distributors went for a toss. Possibly, there may be an uptick in NFOs once again if interest of all the stakeholders which includes fund houses, distributors and investors are aligned," said Rajiv Shastri, MD & CEO, Peerless Mutual Fund.

NFOs were the flavour of the market during the previous bull run. Between 2005 and 2008, saw domestic fund houses launch 170 NFOs. New schemes went out of fashion following the 2008 financial crisis. Before the recent hiccup, NFOs had good run between June 2015 and March 2015 amid robust investor flows in the domestic mutual fund industry.