‘Investors should do proper analysis before putting in their money in NFOs as most new launches are in the high-risk thematic space.’
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New fund offerings (NFOs) by mutual funds (MFs) are set to gather pace with the election uncertainty getting over, equity prices remaining buoyant, and volatility subsiding.
Since June 4, when the election results were announced, MFs have approached the Securities and Exchange Board of India (Sebi) for 14 NFO approvals.
Overall, there were 20 fund launches in this month.
Another close to two dozen NFOs, which were filed with Sebi in the past two months, are also in the pipeline.
The fund launch momentum, especially in the equity space, has been strong in the past year amid positive equity market sentiment.
In the calendar year 2023, MFs launched 51 active equity schemes, which collected a total of Rs 36,657 crore (Rs 366.57 billion).
In the first five months of CY 2024, MFs have launched 19 active equity funds and collected Rs 23,515 crore (Rs 235.15 billion).
Including the SBI Automotive Fund NFO’s Rs 5,710 crore(Rs 57.10 billion) collection, the aggregate goes up to nearly Rs 30,000 crore (Rs 300 billion).
“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.” said Dhirendra Kumar, CEO of Value Research.
“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,” he added.
“The launches in the equity space are linked to the market performance. This is evident from trends seen in the past,” added Amit Bivalkar, Founder, Sapient Finserv.
Among the filings made with Sebi this month, eight are active equity funds and seven are passive equity funds.
The most common category is the business cycle fund with three filings in the last 10 days by Bank of India MF, Motilal Oswal MF and DSP MF.
Business cycle funds try to invest in sectors or themes that are likely to see a recovery or stronger growth vis-a-vis other sectors.
They look to generate higher returns by buying cyclical sectors during the equity market bull phase and defensive sectors during a downturn.
The manufacturing theme, which has seen a few launches in the recent month, is also set to see two more launches.
Other recent filings in the active equity space include Bajaj Finserv largecap fund, Motilal Oswal Digital and Technology Fund, and ITI Large & Mid Cap Fund.
On the debt side, Franklin Templeton MF is preparing for a revival.
The fund house, which completed the liquidation of the six debt funds that were abruptly closed in 2020, has sought Sebi’s go-ahead to launch a medium-to-long duration fund, gilt fund with a 10-year constant duration, and a long-duration fund.
Regulations allow MFs to launch only one scheme in the active equity space except for the sectoral and thematic category.
As most fund houses have funds in all the active fund categories, the launches are mostly in the thematic category and passive space.
The hybrid fund category has also seen a spurt in MF interest post the change in debt fund taxation in April 2023.
The multi-asset allocation category has seen the most launches in the hybrid space with 12 launches in the financial year 2024.
Feature Presentation: Ashish Narsale/Rediff.com
