MFs join NFO bandwagon as SEBI lifts curbs

With SEBI lifting its three month ban on launch of new fund offers (NFOs), mutual funds (MFs) are hitting the streets, launching NFOs to shore up their assets under management. This is despite the one-year return of most equity schemes slipping into red.

Interestingly, fund houses are playing to the gallery by focusing on passive funds rather actively managed ones.

With no major IPOs slated for next few months in view of the market mayhem, mutual funds are selling the NFOs hard to attract investor.

In April, Sebi banned launch of NFOs till July 1, so that MFs can concentrate on fixing the new systems that stop accepting money from pooled accounts of brokers and distributors.

Motilal Oswal MF has launched two passive funds on BSE Financials and Healthcare while Aditya Birla Sun Life MF has come out with Nifty Financial Services ETF.

WhiteOak Capital MF and Edelweiss MF have launched a flexi-cap and focused equity fund, respectively. Despite the current debt market turbulence, SBI MF has launched a fixed maturity plan of 1,361 days while Quantum MF has come out with a Nifty 50 ETF FoF. Apart from these another 15-20 NFOs are expected to hit the market in next three months.

At least eight AMCs -- including Kotak MF, Axis MF, Union MF, PGIM India MF, Sundaram MF, Baroda BNP Paribas MF, LIC MF and Franklin India MF – had filed offer documents last month with Sebi seeking approval for new scheme launch. Draft papers were filed for another 15 schemes by a dozen fund houses in April and May.

Prateek Pant, Chief Business Officer, WhiteOak Capital Asset Management said the fund house had filed papers for launching six NFOs including large-cap, mid-cap, tax saver, large and mid-cap, flexi cap and emerging markets fund.

“We had received approval for five and hope to get nod for the emerging markets fund once the current restrictions are lifted. We would come out with NFOs on other funds in coming months,” he said.

Initial trends critical

Girirajan Murugan, CEO, FundsIndia said NFOs with differentiated offerings should do well but overall inflows may moderate since the one-year return has turned weak. So the initial trend of NFO collections will be critical and decide the pace for future NFO offerings, he said.

Passive funds in the large-cap segment makes more sense given the high overlap across the active funds and their passive benchmarks. Incrementally, as seen in the last few years, it is becoming difficult for active large-cap funds to provide reasonable outperformance given the higher expense ratios, he added.

Mop-up of funds through NFOs had plunged 56 per cent in the first quarter of this fiscal to ₹3,307 crore against ₹7,540 crore logged in the same period last year. MFs would have drawn a blank, if not for the NFOs that were launched in March and closed in April. Of the four NFOs that closed in April, ICICI MFs offer accounted for the lion’s share of ₹3,159 crore.

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