Mutual funds rake in record Rs 14,370 crore via equity NFOs in June

At Rs 37,885 cr, collection in H1CY24 surpasses entire 2023 mopup

A strong influx of 11 equity new fund offers (NFOs) in June, particularly within the thematic space, helped mutual funds collect Rs 14,370 crore — the highest ever via such introductory offers.

This surpassed the previous high recorded in July 2021, where four NFOs accumulated Rs 13,709 crore, with ICICI Prudential MF’s flexicap NFO alone mobilising Rs 9,808 crore.

In the first half of 2024, mutual funds launched 30 active equity schemes, compared to 51 in the entire 2023. Also, NFO collections by active equity schemes in 2024 have outpaced the 2023 total, with equity NFOs raking in Rs 37,885 crore by June, surpassing the Rs 36,657 crore collected during the previous year. In 2022, 27 launches had collected Rs 29,586 crore.

Experts attribute the uptick in NFO launches and collections to buoyant market conditions, noting that equity fund launches typically flourish during bullish phases. June was the first month in at least five years when more than 10 active equity fund launches completed their NFO period.

However, the surge in thematic NFOs, considered the highest-risk category in mutual funds, has prompted industry leaders to call for caution. Neil Parikh, chairman and CEO of PPFAS Mutual Fund, expressed his concerns via social media, stating: "Wow, the sheer number of NFOs launched, especially thematic funds, is a bit scary… be careful, guys.”

Echoing similar sentiment, Dhirendra Kumar, CEO of Value Research, explained: “NFOs are an easier route for fund houses to raise money, compared to their existing schemes, as NFOs are sold through a story rather than past performance. Hence, during periods of positive equity market sentiment, launches go up. Investors should do proper analysis before putting in their money in NFOs as most new launches are in the high-risk thematic space.”

The end of the Lok Sabha elections and a continued market upswing have fuelled the momentum for NFOs in both active and passive equity spaces. Since the beginning of June, mutual funds have introduced 29 new products in these categories, nearly half of the total launches from the previous five months of 2024.

Currently, seven more active and passive equity NFOs are open for subscription. The active equity NFOs include ICICI Prudential MF's Energy Opportunities Fund, Franklin Templeton MF’s Multicap NFO, and Edelweiss MF's Business Cycle Fund.

Radhika Gupta, MD & CEO at Edelweiss Asset Management, highlighted the strategic approach to launching NFOs, ensuring that the market segment or theme is not overheated. “We try to launch NFOs when the theme is not overheated. For example, our tech fund was launched earlier this year, smallcap fund in 2019, and US tech fund during the Covid pandemic. We also don’t launch extremely narrow funds,” she said.

The influx of NFOs has significantly bolstered inflows into equity scheme categories in recent months. In May, equity MF schemes recorded their highest ever inflows of Rs 34,697 crore, with NFOs contributing Rs 9,563 crore. June saw this figure soar to a new high of Rs 40,608 crore, driven by the record NFO collection.