 "Equity NFOs reduced to a third in 2016")
After two years of a high number of new fund offers (NFOs) in the equity segment, mutual funds have seen a substantial decline in 2016.
This appears the result of a combination of stricter norms on commission structure, rising preference among investors for existing funds with a track record, the regulator’s tough stance on merger of similar schemes and, more important, the lack of a strong stock market rally. Against 63 new equity schemes in 2015 which mobilised Rs 8,816 crore, the sector saw only 19, garnering Rs 1,895 crore. Some executives said as the sector can’t spend a lot on marketing of a new product, fund houses are concentrating on their existing schemes. Says Kaustubh Belapurkar, director (fund research) at Morningstar India: “The focus has clearly shifted to existing funds. Especially those schemes which are doing well. Further, Sebi (the markets regulator) has been strict in granting a go-ahead to new schemes unless these are different from existing funds.”
He feels this downward trend will continue. “Fund houses are streamlining their product offerings. Similar schemes are being merged. Only those with a gap in their product basket might come up with new launches, to fill the gap,” he explains.
Sector officials say NFOs are an expensive proposition in current times. “Earlier, when there was no cap on commission payout, it was easier for us. It has not remained so since the cap came into existence,” said the national sales head of a fund house. Many had earlier used the NFO route to add growth to their assets under management. Fund houses have capped the upfront commission at one per cent, while trail fees are 50-70 basis points.
There was a major impact on equity NFOs in the aftermath of the Lehman Crisis. From a high of 48 launches in 2007, it dipped to eight in 2012. Experts and sector executives had then said that NFOs were out of fashion. However, in 2014 and 2015, there was a jump, with a high as 75 in 2014. However, the amounts garnered were nowhere near what the segment used to raise pre-Lehman.