Mutual Funds See NFO Collection Jump 4 Times To Rs 22,000 Crore In September Quarter

Typically, New Fund Offerings (NFOs) are launched during a booming market where investors are highly optimistic, and floated to benefit from the confident mood in the market and gain investment. 

Mutual funds’ collection via new fund offerings (NFOs) increased about four times to Rs 22,000 crore in the July-September period in the current fiscal year, against the preceding quarter, owing to 48 new schemes entering the market. 

Gopal Kavalireddi, VP - Research, FYERS, in his outlook, said, “Going forward, more NFOs can be expected in the coming quarters as several AMCs become operational and offer similar and differentiated products to the equity and debt investors.” 

He added that with growing confidence in India’s growth and the coming up of new segments in organised space, an increasing number of firms are looking for funds through primary and secondary market offerings, reported PTI. “To support these listed businesses, AMCs would be interested in launching more schemes across equity and hybrid categories, especially in the mid-, small-, and micro-cap market capitalisations,” Kavalireddi noted. 

For the quarter ended September 2023, 48 schemes were launched, which together raised Rs 22,049 crore at the NFO period. This number stood higher than 25 NFOs that raised Rs 5,539 crore during their NFO period in the preceding quarter ended June, data from Morningstar India revealed. Typically, NFOs are launched during a booming market where investors are highly optimistic. As such, these are then floated to benefit from the confident mood in the market and gain investment. 

Explaining the influx in NFOs, Feroze Azeez, Deputy CEO, Anand Rathi Wealth, said, “This huge inflow in NFOs is primarily due to the overall sentiment towards equity. SIP (Systematic Investment Plan) flow increased to Rs 16,900 per month. Overall flows in mutual funds since the start of this year stood at Rs 80,000 crore so the momentum towards equity is also resulting in NFOs getting good flows.”

Kavalireddi added that the risk appetite of investors for financial assets is on the rise and is leading AMCs to offer fresh products. “Further, consolidation of existing AMCs led to expanded offerings by newer management across categories, and the addition of newer asset management companies like Bajaj Finserv pushed investors to allocate more to investments,” he noted. 

Among the categories, differentiated passive strategies thematic or sector funds seem to be the most popular among fund managers, as this category saw the highest number of schemes launched at 13, followed by 12 other ETFs. Regarding funds, the sectoral category raised Rs 5,725 crore, followed by multi-asset collection at Rs 4,791 crore, multi-cap fund at Rs 3,277 crore, and liquid funds at Rs 3,083 crore. 

Kavalireddi stated, “With an increased risk appetite for equities and awareness of products and offerings, retail investors opt for higher-risk products like thematic and sectoral funds compared to other products. The ability of sectoral funds to deliver high returns during high economic activity outpaces the returns from passive schemes like ETFs and Index funds. This helped AMCs launch more sector funds vis-a-vis ETFs.”

Azeez further stated that NFOs are estimated to remain consistent in the thematic, sectoral, and passive categories. He named ICICI Pru Innovation Fund, HDFC Defence Fund, and HSBC Consumption Fund, among some of the schemes that garnered the highest AUM during the quarter under review. The analyst recommended investors to not head straight into NFOs as ‘the fund being launched is new and has no track record and there is no additional benefit of investing in an NFO wait period’.