Mutual Funds

Mutual funds line up equity new fund offers, but will investors partake?

Mutual Fund new fund offers (NFO) that had taken a backseat in the last one year are once again flooding the market with new launches.

More than a dozen equity funds have been launched in this financial year, while NFOs of as many as 8 equity schemes are currently on.

Also, close to 15 equity schemes from various mutual funds have sought the Securities and Exchange Board of India’s approval to launch equity schemes in the current financial year.

Mutual Fund experts cited that rush of new fund offers is after the SEBI’s directive on classification and categorisation of mutual funds.

In October last year, SEBI standardised the scheme categories and brought in uniformity in the characteristics of similar types of schemes offered by different funds.

The regulator classified open-ended schemes under five broad groups: equity, debt, hybrid, solution-oriented, and others (index, exchange-traded funds or ETFs and fund of funds).

This prompted fund houses to launch schemes that were not in their product basket.

“After the SEBI diktat most fund houses are launching NFOs to complete their basket of product offering,” said a Mumbai-based distributor.

IDFC Mutual Fund, Reliance Mutual Fund, Edelweiss Mutual Fund, Sundaram Mutual Fund, and UTI Mutual Fund, among others, have sought approval from SEBI for launching equity schemes.

A large number of these schemes are aimed at investment in equity and equity-related securities and are open-ended. Small cap, capital protection, value fund, Sensex index fund, Nifty index fund, exchange traded funds are some of the themes that investors can choose from.

Also, a there are a few fixed term plans and hybrid funds as well. The last time there was such a flurry of new scheme launches was during the bull market of 2007 when more infrastructure-themed funds garnered the most just before the market crash in 2008. The majority of them are now languishing with below par returns.

But the question is if there will be enough demand for these schemes, given that inflows into equity schemes have slowed down in the last few months.

Inflows into equity mutual fund schemes in July slowed down to their lowest levels in four months,

A Mumbai-based distributor Alok Jaiswal said, “There is not much appetite in the market for slew of equity or debt funds,” adding that does not make sense for investors to put money in new schemes, before checking the track record or returns of the old offerings of the fund house before taking a decision.

The average monthly inflows in the first four months of FY19, declined to Rs 10,400 crore from an average monthly of around Rs 14,200 crore witnessed in FY18.

It remains to be seen whether these theme-based funds can deliver better returns than equity diversified funds.

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