Mutual funds are now changing tack to attract investors to invest in their products after a bearish sentiment in equity markets led to a spate of new fund offerings (NFOs) that managed to collect meagre amounts of money from the investing public.
A spate of NFOs — those of Morgan Stanley, HSBC and Mirae that hit the market after the market meltdown in January — together managed to mop up only about Rs 250 crore. Funds are now offering protection on the downside for investors.
Birla Sun Life’s equity-linked fixed maturity plan (FMP) is positioned as giving returns between an equity fund and an FMP. The fund will invest in debt securities with coupon linked to the Nifty and will offer the enhanced upside of the equity market as well as protection if the equity market goes down.
The other fund — JP Morgan’s Alpha Fund — will follow a long-short strategy. The fund manager will buy stock or its derivatives if it is likely to go up and balance it with another stock or a derivatives contract likely to go down, depending on the view the fund house has on those stocks. The fund house is touting the fund as an “all-seasons fund”. Krishnamurthy Vijayan, chief executive officer, JP Morgan Asset Management Company, says last year if people were offered anything apart from equity, they would not have taken it. But this year, with the markets being in the dumps, investors are willing to look at newer ideas.
Though AMCs have launched NFOs in this market, they have tempered their expectations about the amount of money they can collect. Typically, funds collect the highest amount of money during the NFO. Vijayan said the fund is looking at a modest collection of around Rs 400 crore since it is targeted at a “sophisticated” set of investors. “Anything over that is definitely welcome,” said Vijayan.
Contrast this to the lofty targets that fund houses had set at the peak of the bull market. In fact, in the last two years, the mutual fund industry saw some big money-raising — SBI Infrastructure Fund Series 1 managed to mop up Rs 2,536 crore, Franklin India High Growth Fund collected Rs 1,515 crore and more recently, Reliance Natural Resources Fund collected Rs 5,660 crore.
Distributors feel that it makes sense for funds to target investors rather than attempt to attract the mass market. “It is mainly the market sentiment that has been hit. Products that offer implicit and explicit protection to investors will find takers. Fund collections will be of a smaller order and so it makes sense for funds to target a particular category of investors rather than launch products for the mass market,” said Joseph Thomas, head of research, Birla Sun Life Distribution Company.
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There are some exceptions — ICICI Prudential AMC and Sahara AMC have come out with banking and financial services funds. However, ICICI Prudential AMC is advising investors to make its banking fund a part of their portfolio. ICICI Prudential AMC had earlier come out with its focused equity fund that managed to garner just about Rs 600 crore.
“With the banking and financial sector currently witnessing re-rating in valuations, it is the most opportune time to initiate participation in this sector, which is expected to gather momentum on account of various growth triggers, thereby presenting a high upside potential,” said Nimesh Shah, managing director, ICICI Prudential AMC. The banking sector has been badly battered in the market fall. The BSE Bankex fell close to 42 per cent since January 23.