Investors prefer existing funds than NFOs

Investors may prefer to invest in the existing schemes of mutual fund houses instead of putting money into new fund offerings, after the Indian markets went into a tailspin following weak global cues and a situation of tight liquidity in India, feel most distributors.

Eleven new fund offerings are currently open including AIG Infrastructure and Economic Reform Fund, HDFC Infrastructure Fund, Reliance Natural Resources Fund, ICICI Prudential Fusion, Lotus India Mid and Small Cap Fund and two from JM Mutual Fund's stable, JM Core 11 fund and JM Tax Gain fund. 

TREADING CAUTION
NFOs currently open	Closes
AIG Infra and Economic Reform fund	Jan-31
HDFC Infrastructure	Feb-21
ICICI Prudential Fusion	Feb-21
JM Core 11 fund	Feb-15
JM Tax Gain fund	Mar-25
Lotus India Mid n Small Cap fund	Feb-19
Reliance ELSS	Mar-17
Reliance Natural Resources Fund	Jan-30
UTI Long term Advantage	Mar-19
SBI Tax Advantage	Mar-03
StanChart Small n Midcap	Feb-15
NFOs to open	Opens	Closes
Quantum Gold Fund	Jan-24	Feb-08
HSBC Emerging Markets fund	Jan-28	Feb-25

Since several NFOs have opened as recently as last week, exact collection figures could not be obtained. Existing schemes have seen inflows rather than redemptions.

"We have got fresh inflows in the last one week or so at least to the extent of our fortnightly average," said a senior official from DSPML Mutual Fund.

The Bombay Stock Exchange (BSE) benchmark index Sensex has fallen by 652.04 points or 3.43 per cent in the last one week. The figures do not reveal the entire picture because the market saw stomach churning volatility, moving by as much as 1500 points in a single trading session.

Most distributors are saying that there would be a definite impact on NFOs that are currently open. "There would definitely be an impact on collections since this NFO money is likely to remain in cash for some time. Investors would prefer to invest in the ongoing schemes where money would be immediately deployed in the market at these low levels," said Sridhar K, vice-president and country head (Distribution), Karvy Stock Broking.

However, some distributors feel that investing in NFOs at the current time could also mean that the fund manager would have the opportunity to invest over a period in stocks available at attractive valuations.

Mutual funds themselves are preferring to wait and watch since they feel that the markets have fallen too fast. "It is too early to decide if collections are going to be impacted or not," said Rajiv Vijay Shastri, head-Business Development and Strategic Initiatives, Lotus India Mutual Fund. He acknowledged that there has been a pick up in fresh purchases for existing schemes.

Some of the best performing mutual funds saw their net asset values (NAVs) declining by more than 19 per cent in Tuesday's trading session.

Much like Reliance Power's initial public offer, Reliance mutual fund's Natural Resources Fund saw tremendous investor interest in the first few weeks but interest has slightly waned after the market fell. But the refunds that will come from the IPO should help the fund's collection, said a distributor.

According to market sources, the fund house has targeted a collection of Rs 10,000 crore through this fund, distributors feel that the fund house may manage to raise the targeted amount.

"The investment mandate of the fund is to invest overseas as well but investors are putting in money as if it were a pure domestic equity-diversified fund, going by the Reliance name," said one distributor, who did not want to identified.