Sebi reopens doors for pending new fund offers in the equity segment

New product launches in equity segment set to gain traction as scheme re-categorisation nears conclusion

The Securities and Exchange Board of India (Sebi) has resumed the process of giving a nod to pending applications for new fund offers (NFOs) in the equity segment. New approvals were put on the back-burner, amid implementation of scheme re-categorisation norms. 

The regulator had directed the 42-player mutual fund (MF) industry to re-align its schemes to put an end to duplication and ensure they reflected their investment objectives.

Data from Value Research shows that as many as five open-ended equity schemes were launched in August. This is the highest tally seen in at least one-and-a-half years. Industry players said a lot of approvals that were pending with Sebi for many months are finally getting the green light.

“Sebi wasn’t approving any NFOs for nearly a year as the re-categorisation norms were being implemented by the industry," said Sunil Subramaniam, managing director of Sundaram MF. With Sebi averse to the idea of scheme overlaps, Subramaniam added that asset management companies will need to convince Sebi on how the new scheme is distinct from the existing product basket of the fund house.

Officials said there could be more launches in the coming months, as fund houses will look to launch new schemes in categories where they don’t have a presence. 

Vidya Bala, head of mutual fund research, FundsIndia, said: “Smaller fund houses were waiting for approvals on new schemes to fill gaps in their existing product basket.” 

For instance, Motilal Oswal AMC, which has largely been an equity-focused fund house, launched an open-ended Equity Hybrid Fund in August. The scheme would restrict its equity exposure to 65-80 per cent with a large-cap bias, while the rest will be in debt. Recently, Kotak MF launched a Balanced Advantage Fund. Edelweiss MF and Motilal Oswal AMC have also filed draft paper with Sebi for a small-cap fund.

Certain fund houses are launching NFOs based on their assessments of prevailing investment opportunities.

For instance, Sundaram MF launched Sundaram Services Fund, also in August. The open-ended equity scheme will invest from 80-100 per cent in sectors such as transportation and logistics, healthcare, retail, media and entertainment, hospitality and tourism, online and financial services, fitness, education, staffing, wealth management, aviation, etc. 

Also in August, BNP Paribas MF launched a new scheme based on the consumption theme.

Aditya Birla Sun Life MF had last year filed an offer document for a pharma fund. A Balasubramanian, chief executive officer of Aditya Birla Sun Life MF, said the fund house will launch the scheme as and when it receives approval from Sebi.

Meanwhile, advisors have cautioned investors looking at NFOs given there is a chance that certain schemes may get mis-sold amid hard-selling from some quarters. 

According to people in the know, the upfront distributor commissions in certain instances could be more than 100 basis points, which is the cap set by industry body Association of Mutual Funds in India (Amfi) in its ‘best practices’ guidelines.

The re-categorisation norms don’t put a bar on the launching of close-ended schemes. However, a sharp spurt in launches of such schemes in recent years has made the regulator averse to granting fresh approvals to these schemes. “Sebi is said to be now less willing to approve close-ended schemes, as it fears these products may be mis-sold to investors," said an industry player.

As Business Standard had reported earlier, upfront commissions on such schemes rose as high as six per cent in FY18.