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Launches of new equity schemes by the mutual fund industry have dropped significantly in 2016. Rising preferences among investors and distributors for schemes with established track record, amid tightening of norms by Securities and Exchange Board of India (Sebi), the number of new fund offers (NFOs) has squeezed. The Rs 14-lakh mutual fund industry, with over 40 players, offered only 11 new schemes in the first five months of 2016. It’s a drop of over 70 per cent against the 39 new equity funds that were launched during the same period in 2015.
These new schemes could garner a mere 12 per cent of what they mobilised during January-May 2015. The collective asset mobilisation by equity NFOs declined to a paltry sum of Rs 769 crore in first five months against Rs 6,380 crore in the same period last year.
There was a rush of NFOs in the first few months of last calendar year, ahead of capping on upfront commissions paid to distributors which came into effect from April 1, 2015.
According to Kaustubh Belapurkar, director (fund research) at Morningstar India, new fund launches are a phenomenon seen in bull market. “I think there will be a further slowdown in NFOs. The regulator has been quite strict and there is a push for mergers of existing similar schemes,” he says. The recent regulatory actions have acted as dampeners on new launches as upfront commission paid to distributors is capped at one per cent. Further, the issue of commission disclosures on investors’ account statements is playing havoc among the distributors. Meanwhile, Sebi’s tough stance on expense ratio and mergers of schemes is not letting the industry go for new schemes.
Chief executive officer (CEO) of a mid-sized fund house says, “The regulator has been quite strict and has been pushing for consolidation of existing schemes. Their views on drastic cuts in expense ratio will not leave any room for fund houses to launch new schemes as any NFO comes with an additional cost. It looks unlikely that NFOs will repeat history as tools for massive asset mobilisation.”
Out of the 11 new equity schemes so far this year, three are open-ended from the stable of Principal Mutual Fund, HDFC Mutual Fund and DSP BlackRock Mutual Fund. They gathered assets worth Rs 280 crore. Five were in the closed-end category, dominated by fund houses like ICICI Prudential AMC, Sundaram Mutual Fund and Birla Sun Life Mutual Fund, which gathered only Rs 167 crore. The rest three were equity-linked saving schemes — all launched in March — mobilising Rs 322 crore.
