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The pace at which India's fund houses launched new fund offers (NFOs) in the equity segment has slowed down drastically. Owing to investors’ continuous preference for existing schemes and the cap on up-front commission, there were only four new launches in the past two months garnering a paltry sum of Rs 252 crore. It means, on an average, every scheme could monetise fresh assets worth only Rs 63 crore.
The latest trend suggests that investors don’t want to pump money into new schemes and fund houses are no more interested in adding products. Also, notably, there were no launch of close-ended schemes in July. Both new funds were open-ended in nature from the basket of Mirae Asset and Reliance Mutual Fund.
It’s a clear shift if one looks at the past one-and-half-year track record of the mutual fund sector. During that period, the sector launched a whopping 114 equity NFOs - both close and open structure - garnering an asset size of Rs 18,600 crore. This implies that on an average, the sector offered seven new equity schemes every month while gathering Rs 163 crore from each such launch.
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These figures are nowhere close to what the mutual fund officials had witnessed during the bull run of 2005-2008. A total of 171 new equity schemes had hit the market then, each garnering Rs 640 crore on an average, triggering a huge fresh corpus of Rs 1.1 lakh crore through the NFO route.
Experts say a repeat of 2014 looks difficult in 2015. Ajit Menon, executive vice-president of DSP Black Rock AMC, had earlier told Business Standard: “I think there would be a lull in NFO launches this year. Lower commissions might not let distributors take interest.”
Those having Securities and Exchange Board of India (Sebi)’s approval will be able to hit the market, but might not be able to garner large sums if there is a lack of support from distributors. In 2014, as many as 75 equity schemes (50 close-ended) were launched, but those could gather only Rs 12,200 crore.
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Many fund houses are expected to scale back NFO launches to avoid regulatory ire. Vikaas Sachdeva, CEO of Edelweiss Mutual Fund, said, “New launches are the function of markets and investor appetite. But as distributors' commissions have been reduced, the situation could be different.”
A circular issued by the Association of Mutual Funds in India (Amfi) had asked fund houses to cap upfront commissions to distributors at 100 basis points, effective April 1. This follows Sebi expressing concern over high commissions paid in the case of certain NFOs. Fund houses were believed to be paying commissions of up to eight per cent to distributors for some close-ended funds with a tenure of five years.
