 "2024's record NFO success continues into 2025 with strong momentum")
The strong momentum in the new fund offering (NFO) space, which took launches in 2024 to a record high, has extended into the new year.
Six equity mutual fund (MF) NFOs have opened for subscription so far in 2025, including industry-first offerings like ICICI Prudential MF’s Rural Opportunities Fund and WhiteOak Capital MF’s Quality Equity Fund.
Other new launches include the Mirae Asset Smallcap Fund, Bandhan Nifty Alpha Low Volatility 30 Index Fund, Kotak Nifty Smallcap 250 Index Fund, and UTI Quant Fund.
2024 was a record year for NFOs, with launches exceeding 200 for the first time, even as debt fund launches declined. NFOs in the equity space, including active funds and index funds, numbered more than 150, according to data from Morningstar India. "In bull markets you tend to see a greater number of new fund launches, plus given SEBI one fund per category regulation, the space to launch new funds by most existing asset managers was in the passives and thematics space," said Kaustubh Belapurkar, Director - Manager Research, Morningstar Investment Research India.
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The fund launch spree was one of the major factors behind record investment account additions in 2024 and inflows into equity funds. Last year (as of November), investors poured a record Rs 3.5 trillion into active equity schemes.
These launches were mostly in popular sectors and themes, with a sizeable portion being first-of-their-kind industry offerings, such as those tracking capital markets, tourism, real estate, electric vehicles, new-age automotive, and other sectoral indices.
Sectoral and thematic funds were in high demand in 2024. Active funds in this category saw the highest inflows and added the most number of folios last year. The NFO tally in the active thematic space alone was 41.
Differentiated offerings in the passive space were also launched around factor-based indices like Nifty MidSmallcap400 Momentum Quality 100, Nifty200 Alpha 30, Nifty500 Multicap Momentum Quality 50, and Nifty MidSmall Healthcare.
The trend of MFs exploring new funds in the thematic and factor-investing space is likely to continue this year.
ICICI Prudential MF’s Rural Opportunities Fund is the first MF scheme to focus on companies involved in rural and allied sectors.
“Rural India is the next theme that can have a transformational impact in the next decade. Driven by structural and cyclical economic factors, and also due to many state governments’ increased focus on rural development through various initiatives, it is likely to be the segment that will contribute to economic growth,” said Sankaran Naren, executive director and chief investment officer of ICICI Prudential Asset Management Company (AMC).
WhiteOak Capital MF’s Quality Equity Fund is the first actively managed quality factor fund. Aashish Somaiyaa, chief executive officer of WhiteOak Capital AMC, said the theme is attractive at present, given the underperformance of quality stocks in the past few years.
“In the past three years, quality businesses that may have shown good earnings profiles have still underperformed because the market has favoured the value factor theme and cyclical businesses driven by macros like commodity prices, geopolitics, government policy, interest rates, etc. Markets are relative value-seeking and mean-reverting, and we believe it is time to shift to quality in 2025,” he said.