Losing steam: Average NFO collection slumps in FY23, shows data

At Rs 260 crore, average amount mobilised per new fund offer 57% below last financial year's tally

New fund offers (NFOs) by mutual fund (MF) houses this financial year (2022-23) have managed to amass only a fraction of what they did in 2021-22 (FY22).

Forty-nine NFOs launched between April and August have mopped up Rs 12,671 crore, at an average of nearly Rs 260 crore. By comparison, 176 NFOs launched in FY22 collected Rs 1.08 trillion, translating into Rs 613 crore per offering.

Experts attribute this dip in collection to fewer launches in popular categories by top fund houses — and their weak performance last year. Moreover, concerns around expensive valuations and issues bunching up after the end of a three-month embargo encumbered collections.

Data released by the Association of Mutual Funds in India shows that only five of the 49 new schemes launched this year were by active equity funds and one was a balanced advantage fund (BAF). Furthermore, only one of these six NFOs came from a premium fund house.

“The collections are low since launches are mostly in passive and debt categories. Fund houses are just completing their product basket through these NFOs,” says Mumbai-based MF distributor Sadashiv Phene.

Industry observers say most recent NFOs were launched to fill product lacunae and lacked the distribution muscle.

“The NFO frenzy has ended for now. Last year, NFOs accumulated record sums on the back of a strong market rally. Now that the returns from these schemes are frail, the money isn’t flowing into NFOs like it used to earlier,” says Ranjit Dani, co-founder, Think Consultants.

Last year, five blockbuster NFOs gathered in excess of Rs 5,000 crore each and one BAF by SBI MF, the country’s largest fund house, mopping up a record Rs 14,551 crore.

ICICI Prudential MF’s flexi-cap NFO was the second-highest grosser, with a Rs 9,800-crore collection.

The dominance of top fund houses over the list of highest-grossing NFOs last year shows that the familiarity of the brand and a well-established distribution network contribute to the success.

“Our wide distribution network, coupled with strong brand connect, ensured significant collections in two of our NFOs last financial year. Also, our multilingual communications on NFOs clicked with investors,” says D P Singh, deputy managing director and chief business officer (CBO), SBI MF.

With markets turning choppy this year, experts say investors are opting for schemes with a proven track record.

Amar Shah, CBO at ICICI Prudential MF, says that investment outcomes in previous NFOs also played a key role.

“Our NFOs did well last year as investors today know that our offerings are positioned well for the prevalent market phase,” he observes.

NJ MF’s BAF was an outlier in last year’s list. It accrued over Rs 5,000 crore despite being a maiden scheme of the found house. NJ Group, however, has a strong presence in the MF distribution space and is the country’s top distributor in terms of fees earned.

Apart from distribution wherewithal and brand connect, the launch timings, particularly of BAFs, worked well.

“Markets were at record highs when BAF launches happened. Investors were looking for safer options that could limit the downside and BAFs emerged as one of the preferred choices,” says Viral Bhatt, founder, Money Mantra.

Top 5 NFOs since April 2021
 

SBI MF's balanced advantage NFO tops the list, followed by ICICI Prudential MF's flexicap scheme

SBI Balanced Advantage Fund

What worked

The fund house's association with top-lender State Bank of India and tie-ups with distributors across the country. A demand for safer non-debt investment option amid over-valuation concerns

ICICI Prudential Flexicap Fund

What worked

Established name and association with a major bank (ICICI Bank). Also, the fact that flexicap fund is the most popular retail mutual fund offering

SBI Multicap Fund

What worked

Strong distribution machinery led by SBI Bank. A correction in the equity market.

Bharat Bond ETF (April 2032)

What worked

Edelweiss' Bharat Bond has emerged as a strong alternative to traditional fixed income options. Potential to deliver predictable returns amid heightened interest rate risk

NJ Balanced Advantage Fund
 

What worked

Balanced advantage funds were in trend last year. The fund house was new but it had a strong ally in NJ India Invest which is the country's biggest MF distributor