Mutual fund houses adopt cautious approach to NFOs with only 59 new schemes in 2023

In the midst of a highly competitive mutual fund landscape with an extensive range of existing schemes, asset management companies are adopting a restrained approach to introducing new offerings. As evidenced by the filing of draft documents, a total of 59 new fund offerings (NFOs) were initiated during the first seven months of the current year.

Comparatively, the same period in the previous year saw draft papers filed for 70 NFOs. Industry data for 2022 revealed the launch of 228 new schemes, a notable increase from the 140 introduced in 2021.

Shrey Jain, Founder and CEO of SAS Online, projected that the upcoming months of 2023 are unlikely to witness NFO figures comparable to those of 2022 or 2021. Factors contributing to the decline in NFO activity are multifaceted, driven by a blend of internal and external dynamics within the mutual fund industry.

Shrey said, "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,"

Market corrections anticipated

Additionally, the present market's record-high levels could be influencing AMCs' caution in launching NFOs. During phases of elevated market indices, fund management companies might anticipate the potential for market corrections or downturns.

Ajaykumar Gupta, President and CBO of Trṣust MF highlighted the flexibility of AMCs in launching passive products, in contrast to limitations on other fund types as per the categorisation and rationalisation of mutual fund schemes outlined by capital markets regulator Sebi.

According to data from the Securities and Exchange Board of India (Sebi), a total of 59 draft scheme information documents (SIDs) were submitted from January to July this year. August has seen two draft documents filed by Bajaj Finserv Mutual Fund and WhiteOak Capital Mutual Fund.

Lowest fund mobilisation in last 4 years

In terms of fund mobilisation, mutual funds' NFO collections stood at nearly Rs 20,000 crore in 2023 thus far, whereas the corresponding figures were Rs 62,187 crore in 2022, Rs 99,704 crore in 2021, and Rs 53,703 crore in 2020.

AMCs have introduced schemes across both active and passive categories this year, including indexes and ETFs to support the needs of both types of investors.

The year 2022 witnessed the highest number of fund launches in the index fund segment (84), followed by fixed maturity plans (49) and other ETFs (39). In comparison, the pace of active scheme launches in 2023 has been comparatively slower.

In 2023, the equity NFO launches encompassed Multicap, Flexi Cap, Multisectoral, and Thematic categories, shared Gupta.

NFOs typically emerge during bullish market trends when investor sentiment is buoyant and optimistic. These offerings are usually timed to capture investors' positive sentiment and entice investments.

Furthermore, NFOs are introduced when AMCs seek to diversify their existing product portfolio.

The mutual fund holdings of retail investors have escalated by 20.5 per cent year-on-year, currently amounting to nearly Rs 25 lakh crore. This growth was driven by investments in equity schemes, exchange-traded funds (ETFs), and Funds of Funds (FoFs) amid favourable market sentiments.

(With PTI inputs)