MF houses go slow on NFOs, file draft papers for 59 schemes in Apr-Jul

With a wide array of existing mutual fund schemes, asset management companies are going slow on launching new ones in a highly competitive landscape as they filed draft documents for 59 new fund offerings (NFOs) in the first seven months of the year.

In comparison, draft papers for 70 NFOs were filed in the year-ago period. In 2022, a total of 228 new schemes were floated against 140 in 2021, industry data showed.

Moreover, the remaining months of 2023 are not expected to see NFO numbers anywhere close to those of 2022 or 2021, SAS Online founder and CEO Shrey Jain said.

The reasons behind the decline in NFOs could be a combination of the factors as the mutual fund industry's dynamics are influenced by various internal and external factors.

"AMCs may be concentrating on managing and promoting their existing schemes, rather than launching new ones. This strategy allows them to maximise the returns for existing investors and maintain stable assets under management," Jain said.

Also, the current market reaching an all-time high could be another reason for AMCs showing caution in launching NFOs. During such periods of elevated market levels, AMCs might anticipate the possibility of a market correction or downturn, he added.

Trust MF President and CBO Ajaykumar Gupta said that AMCs have no restrictions on the number of passive products they can launch, whereas there are limits on other types of funds they can manufacture after the categorisation and rationalisation of mutual fund schemes by capital markets regulator Sebi.

According to data from the Securities and Exchange Board of India (Sebi), 59 draft scheme information documents (SIDs) were filed in January-July this year. In August so far, two draft documents have been filed by fund houses Bajaj Finserv Mutual Fund and WhiteOak Capital Mutual Fund.

In terms of fund mobilisation, mutual funds' NFOs collection was at nearly 20,000 crore in 2023 so far, while the same was Rs 62,187 crore in 2022, Rs 99,704 crore in 2021 and Rs 53,703 crore in 2020.

The AMCs filed schemes in both active and passive categories this year. Besides, documents have been filed in the index and ETF categories to support passive and active investors.

In 2022, the maximum number of funds was launched in the index fund segment (84), followed by fixed maturity plans (49) and other ETFs (39). The year 2023 was relatively slow in the launch of active schemes.

So far in 2023, the industry has seen equity NFO launches in the Multicap, Flexi cap, multiset and Thematic or Sectoral categories, Gupta said.

Usually, NFOs come during a surging market when investor sentiment is high and optimistic. The NFOs were floated to capitalise on the mood of investors and attract their investment during that time.

Also, NFOs are launched when AMCs are looking to increase their existing product bouquet.

Retail investors' mutual fund holdings surged by 20.5 per cent year-on-year to nearly Rs 25 lakh crore at present. This growth was fuelled by investments in equity schemes, exchange-traded funds (ETFs) and Funds of Funds (FoFs) amid positive market sentiment.