Mutual funds ride high: NFOs pick up on market rally, economic hope

29 launches since June 1, nearly half of previous five months' total

Amid market buoyancy, the Rs 60 trillion mutual fund (MF) industry is rolling out new fund offers (NFOs) to capture a larger share of incremental investor flows.

Since the start of June, MFs have launched 29 new products in the active equity and passive spaces alone. This tally is nearly half of the total launches in these two categories in the previous five months of 2024.

MF executives say that while equity market sentiment has been positive for several months now, the launches have gathered pace recently with the resolution of election uncertainty and recent high-frequency indicators cementing a strong economic growth outlook.

While the launches in the active space mostly revolve around themes such as the business cycle, manufacturing, and special opportunities, offerings in the passive space have mostly been in new themes.

On Monday, Tata MF and ICICI Prudential MF launched the first passive thematic schemes focused on the tourism and oil and gas sectors.

Franklin Templeton MF’s active equity NFO for a multicap fund also opened for subscription on Monday.

According to MF executives, NFOs in the passive space have gained momentum in recent years as most fund houses have already completed their active equity product bouquet. They say the scope to launch differentiated offerings is higher on the passive side.

Tata MF’s Tourism Index Fund will track the National Stock Exchange Nifty India Tourism Index, which comprises companies in the travel, tourism, and hospitality businesses.

“The companies forming the index are leaders in their respective segments and have benefited from rising disposable income levels, evolving tastes of the Indian consumer, and sustained higher discretionary spending," the fund house said.

The fund house had launched six index funds in April, three of which were industry firsts.

“Up until the past couple of years, we were quite aggressively filling up the product gaps on the active side. Now our focus is on the passive side. We have tried to launch differentiated products in this space. For example, instead of going for a simple infrastructure or manufacturing index fund, we took a multicap approach to these themes. We have been sharing ideas with the index providers, and they have created the index for the passive funds to take off. There is potential for a lot more innovative funds in the passive space,” said Anand Vardarajan, chief business officer at Tata Asset Management.

ICICI Prudential MF, which recently launched an active fund in the energy space, has also launched the first oil and gas exchange-traded fund, which will track the Nifty Oil & Gas index.

While passive launches have outnumbered active equity scheme NFOs by a wide margin in recent years, the difference in the number of launches is much lower in 2024 so far. This is because the sectoral and thematic fund category, which is the only space that allows MFs to launch multiple offerings, has seen a spurt in new offerings this year.

Since June 1, six active equity fund launches have been in the manufacturing, business cycle, and special opportunities themes. In addition, there have been two multicap fund launches and one new offering in the quant space.

The fund launch momentum, especially in the equity and passive space, is likely to remain strong in the coming months.

Since June 4, when the election results were announced, MFs have approached the Securities and Exchange Board of India for 14 NFO approvals.