Sebi entry load ban may reduce NFOs

MFs will rush to launch offers before the ban comes into force.

The Securities and Exchange Board of India’s (Sebi’s) ban on entry load is likely to reduce the number of fresh new fund offers (NFOs), which would have otherwise hit the market. It might also prompt fund houses to rush into launching the already-cleared NFOs before the August 1 deadline, when the ban comes into effect.

As many as 16 NFOs have either been cleared or awaiting approval from the market regulator. These include DSP Blackrock Enhanced Equity Fund, Tata Money Market Fund, IDFC Infrastructure Fund, Bharti AXA Build India Fund and Tata Small- and Mid-Cap Infrastructure Fund.

A senior official of a large distribution house said, “NFOs coming in July won’t be affected. In fact, one could see a lot of them coming up, especially the ones that have been cleared.”

According to the official, going forward, NFOs could lose steam at least for some time. Most market players are worried that collections would drop sharply, thereby slowing down the pace of new schemes. “Fund houses will launch new schemes, only if there is a genuine need of that scheme in their product basket,” added the official.

The Sebi move is expected to change the fundamentals of distributors selling mutual fund schemes.

As it is, selling NFOs is not an interesting proposition for distributors since it is a time-consuming affair that needs a lot of convincing to the investor to invest. And now with the entry load gone, distributors would obviously not be too keen on promoting these schemes.

Sanjay Sinha, CEO, DBS Chola MF, said, “Distributors and fund houses will have to adjust to new realities. Year 2008 onwards, investors have shown more interest in existing schemes compared to 2007 when they used to rushed to invest in NFOs.”