Three-month NFO pause may not impact equity inflows, say industry players

Strong SIP inflows will help cushion the blow, they add

The three-month ban on new fund offers (NFO) may not make a huge dent for the Rs 39-trillion domestic mutual fund industry. While equity NFOs have helped industry mobilise an average Rs 11,000 crore every quarter during financial year 2021-22, industry players are confident that flows will continue to remain robust thanks to the strong momentum in systematic investment plans (SIP).

“Till this issue gets resolved we will not launch any new schemes. This will certainly have an impact on fund houses who were planning to launch NFOs. However, we don’t believe overall monthly flows for the industry will have a major impact as the SIP book remains quite robust,” said CEO of the leading fund house.

The total inflows into equity schemes were Rs 1.35 trillion for the 11-month period ending February 2022. Equity NFOs collected Rs 45,344 crore during this period. Meanwhile, SIPs registered net inflows of Rs 1.12 trillion. The last four months, SIP inflows have been more than Rs 11,000 crore every month. Bulk of the SIP flows are in the equity segment.

Experts say in absence of NFOs, fund houses might push existing schemes. Also, the sharp rebound in the market from March lows will boost investor sentiment.

“The market has rebounded nearly 15 per cent from March lows. Investors who continued with their SIPs and lump sum investments when the market came off sharply from this year’s highs have benefited. This will encourage the culture of regular investing. NFOs tend to appeal to retail investors. However, the existing product profile of the industry is quite exhaustive with all the options available to investors,” said a senior executive of a fund house.

Market players said they are waiting for clarity on how the Sebi diktat will impact schemes that have already obtained Sebi approvals.

“Typically, fund houses get six months’ time to launch the NFO after Sebi approval. There is still no clarity whether funds can go-ahead with their NFOs, if they have already got the approval from Sebi. We hope this issue gets resolved soon,” said a top official from the industry.

Sources said the industry will be able to launch new schemes as soon as they pooling issue gets resolved.

NS Venkatesh, chief executive, Amfi said, “To stay focused on its efficient and effective implementation of the October 4 circular, we have agreed to keep NFOs launches on hold during this period. We are confident that NFOs will be back on track soon.”

In a circular issued last year, Sebi has stated that pooling of funds or units by stock brokers and clearing members in any form or manner shall be discontinued for MF transactions.  The regulator asked the industry to implement this from April 1. However, as the industry was not prepared to implement the changes, Sebi has given the industry time till July 1.

Presently, funds or units of the mutual fund schemes move through stock brokers’ or clearing members’ pool accounts in an aggregate manner to client account or clearing corporation/AMC account, as the case may be. The industry also has to put in place a two-factor authentication mechanism to prevent third-party payments as well as safeguarding the interest of unitholders.