NFOs likely to see lower flows over weak investor sentiment, lockdown

In March, collections had declined close to 50% from previous month

The new fund offerings (NFOs) floated by mutual funds (MFs) to fill in product gaps, or offer focused exposure to an investment theme, are likely to see limited collections due to weak investor sentiment and disruption of offline channels amid the nationwide-lockdown.

NFO collections in March -- when the lockdown was put in place to deal with the coronavirus (Covid-19) pandemic -- dipped to Rs 1,310 crore; 48 per cent lower than previous month.

“Fresh allocations from investors to new funds can be challenging, given the weak investor sentiment as several investors are considering stopping existing allocations due to prevailing market volatility,” said Arun Kumar, head of research at FundsIndia.com.

Some fund houses have rescheduled or extended their NFO timelines with distribution partners seeking more time.

“Collections are not a concern for us. However, the offline independent financial advisors have suggested to wait for lockdown to be lifted, so that they can also participate in the NFO,” said George Joseph, chief executive officer and chief investment officer at ITI MF, which has put a large-cap NFO on hold.

“We will float the NFO as soon as the lockdown is lifted, as current valuations are attractive, and can benefit investors in long-run,” Joseph added.

Since March 23, all MF branches have stayed shut to adhere to the social distancing guidelines laid down in the lockdown period.

Recently, L&T MF had extended subscription timelines of two of its NFOs -- L&T Nifty 50 Index Fund and L&T Nifty Next 50 Index Fund. An e-mail query sent to L&T MF didn’t elicit any response at the time of going to press.

Experts say that some MFs may delay their NFO plans and wait for more stability in the markets. “Due to lockdown situation, fund managers are unable to do roadshows and digitally pitching new funds to investors can be challenging, especially in current environment. Some MFs may consider holding off their NFOs, until investor sentiments turn more positive so that sizeable flows can be garnered,” Kumar added.