New fund offerings face Sept drought

Last month, only one new scheme was offered to investors garnering a mere Rs 20 crore

New fund offers (NFOs), a popular money mobilising tool for mutual fund houses, came to a virtual halt in September.

A cap on commission paid to distributors and a rise in market volatility saw the Rs 13 lakh crore fund management sector launch just one NFO last month, which mopped up a mere Rs 20 crore.

In comparison, 47 new equity schemes were launched by the mutual fund sector that helped garner Rs 7,709 crore. Last year, a record 75 NFOs were launched.



NFOs have been on a downward spiral since April when the curbs on commissions kicked in. The Securities and Exchange Board of India (Sebi) has also been discouraging fund houses from launching new schemes unless they are different from existing ones. The first six months of this financial year saw an average of  three NFOs a month.

“Many factors have contributed to this. The regulator does not want similar schemes. Also, as awareness rises, distributors prefer to sell schemes that have a reasonable track record,” said Ajit Menon, executive vice-president at DSP BlackRock Mutual Fund.

 

Investors also prefer existing schemes over new ones. Gross sales of existing equity schemes in this calendar year are Rs 1.18 lakh crore. On the other hand, money raised in new launches is Rs 7,700 crore.

“The markets are subdued for the past couple of months. Awareness is relatively improved and investors seek a track record,” said Hemant Rustagi, chief executive officer of Wiseinvest Advisors.

The bulk of the new schemes launched by fund houses were close-ended, where commissions paid to distributors were as high as eight per cent. With effect from April 2015, the Association of Mutual Funds in India (Amfi), at the behest of Sebi, capped upfront commissions at one per cent. Following this, NFOs lost favour with distributors and hence, fund houses.

“This is a reaction to curbs on commissions. There may be an uptick in NFOs once again if the interest of all the stakeholders - fund houses, distributors and investors - is aligned,” said Rajiv Shastri, managing director and chief executive officer of Peerless Mutual Fund.

NFOs were the flavour of the season during the previous bull run. Fund houses launched 170 NFOs between 2005 and 2008. Before the recent drought, NFOs had a good run between June 2014 and March 2015 on robust investor flows into mutual funds.