NFOs lose steam as existing plans hot up

After two years of strong showing, equity new fund offers (NFOs) have lost steam this year.

So far from January, mutual funds have seen only 13 NFOs, which together have mobilised less than Rs 900 crore. Last year saw 63 NFOs, to raise a little over Rs 8,800 crore.

The drop comes even as the benchmark indices are nearing their all-time highs and broader indices are clocking new highs. The tightening of commission norms and investors' preferences for existing schemes are proving detrimental for newer schemes, say observers.

"The market regulator has been strict on new launches and there is always pressure on fund houses to merge their existing similar schemes. I believe we might see further slowdown in NFOs," says Kaustubh Belapurkar, director (fund research) at Morningstar India.

 

"It's increasingly becoming unaffordable, given the regulator's stance on expense fees and push for schemes' merger. And, the trend shows investors are not as enthused with new offers as in the bull run of 2004-2008. All want a track record, which new launches do not have. This is also discouraging fund houses from launching new schemes," says the chief executive of a mid-size fund house.

Last month, when the markets remained buoyant, there was not a single new equity offer from MFs. There was one NFO each in July and June, garnering a paltry Rs 102 crore.

Of the 13 new equity schemes so far in 2016, four are open-ended. These are from the product basket of HDFC MF, DSP BlackRock, Principal MF and BOI AXA MF. They gathered a total of Rs 340 crore. Six schemes were in the closed-end category, garnering Rs 209 crore. The rest were in equity-linked saving schemes.

BREAKING DOWN EVERYTHING

What is NFO?
An NFO or new fund offer is first-time subscription offer for a new scheme launched by an asset management company. It is launched in the market to raise capital from public in order to buy securities like shares.

Similar to IPO
NFO is similar to an initial public offering (IPO) of shares, in that it is an attempt to raise capital from the market.

Stipulated period
NFOs are offered for a stipulated period. This means investors opting to invest in these schemes at the offer price can do so in this stipulated period only.

After NFO period?
Investors can take exposure in these funds only at the prevailing net asset value or NAV

What is NAV?
Net asset value or NAV is market value of a fund share, given as bid price

An NFO is first-time subscription offer for a new scheme launched by an asset management company. An NFO is launched in the market to raise capital from public in order to buy securities like shares, government bonds. NFO is similar to an initial public offering of shares, in that it is an attempt to raise capital from the market. NFOs are offered for a stipulated period. This means investors opting to invest in these schemes at the offer price can do so in this stipulated period only. After the NFO period, investors can take exposure in these funds only at the prevailing net asset value. The net asset value or NAV is the market value of a fund share. This is normally given as the bid price, which is the price at which investors in the fund can redeem their shares. The NAV is calculated by subtracting any liabilities the fund might have from its total assets, then dividing by the number of outstanding shares so NAV is expressed on a per share basis.

When the term net asset value is used in relation to the valuation of a listed company, NAV is the book value of the company's assets divided by the number of outstanding shares.