MF scheme launches hold steady, but NFO collections register drop

120 NFOs this H1, up from 91, yet volatility and tougher rules sting inflows

The strong momentum in mutual fund (MF) scheme launches, which took the new fund offering (NFO) tally to a record high last year, has continued so far this calendar year. However, NFO collections have taken a major hit. 

The NFO tally for the first half of 2025 is likely to come in around 120, compared with 91 during the same period of 2024. NFO collections, which stood at nearly ₹50,000 crore between January and June 2024 and nearly ₹69,000 crore in the subsequent six months, were just around ₹17,000 crore in the first five months of 2025. 

According to experts, the lower NFO collections can largely be attributed to subdued equity market sentiment and regulatory tightening. 

In December 2024, the Securities and Exchange Board of India (Sebi) announced new rules to curb NFO mis-selling. Under the new guidelines, distributors get no monetary benefits from switching investors’ money from one fund to another, including NFOs.

 

In a bid to ensure that MFs launch schemes at the right time and collect only as much as they can deploy, Sebi also mandated that MFs must invest NFO collections within 30 days. 

 

While these rules came into force in April 2025, most fund houses implemented them soon after the change was announced.

 

There were other factors at play.

 

In 2024, large NFO collections mostly came from equity funds, especially those focusing on popular themes or sectors. The absence of lucrative themes and a sharp decline in thematic fund launches also weighed on collections.

 

Dhirendra Kumar, founder and chief executive officer of Value Research, also credited the lower NFO collections to the growing preference for systematic investing. “Investors have finally internalised the systematic investment plan (SIP) habit. The industry’s monthly SIP book has crossed ₹26,000 crore and is still rising, so a far larger share of fresh money is flowing in through systematic plans rather than one-time cheques for brand-new funds,” he said. “Second, the market’s tone has turned cautious. NFOs are hardest hit in such phases because they don’t offer a track record to reassure people. Third — and this is new — the Sebi rule that a distributor earns the lower of the two trail commissions when money is switched into an NFO has taken the wind out of forced churn.”

 

The decline in NFO collections has been one of the reasons behind the sharp drop in MF inflows, especially in the active equity space. In May, active equity MF inflows fell for the fifth straight month, reaching a 13-month low of ₹26,688 crore. This was despite gross SIP inflows surging to a record ₹26,688 crore.

 

Apart from lower collections, NFOs have also seen a shift in the mix of schemes being launched. A good portion of the new scheme launches have taken place in the largecap segment and in quality and low-volatility themes, which were out of favour with investors in recent years. These launches are in contrast to the trend seen in 2024, when sectoral, thematic, and momentum-based funds dominated the equity NFO list.

 

In 2025 so far, many of the passive launches have tracked indices such as Nifty 200 Quality 30, Nifty Top 10/15/20 Equal Weight, Nifty 500 Low Volatility 50, Nifty 100 Low Volatility 30, and BSE Low Volatility.