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NFOs make hay after Sebi bars insurers from launching Ulips

NFOs make hay after Sebi bars insurers from launching Ulips
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First Published: Wed, May 12 2010. 10 44 PM IST
Updated: Wed, May 12 2010. 10 44 PM IST
Mumbai: New fund offers, or NFOs, by mutual funds have seen a resurgence after the capital market regulator banned life insurance companies from launching new unit-linked insurance plans (Ulips).
DSP BlackRock Investment Managers Ltd, Birla Sunlife Asset Management Co. Ltd, Baroda Pioneer Asset Management Co. Ltd, IDBI Asset Management Ltd, Religare Asset Management Co. Ltd and Reliance Capital Asset Management Ltd are among those raising money through NFOs.
Mint could not ascertain how many new funds have been approved by the regulator, which has stopped publishing details of new funds filed and cleared on its website.
A Sebi official asked Mint to check with the regulator’s IT department, but repeated attempts to reach it were not successful.
“Sebi has started approving NFOs at a faster rate in the past one month. Earlier, all approvals were getting delayed for over three months. I believe at least 10 NFOs are lined up for the next one month,” said the chief investment officer at a foreign asset-management company (AMC).
DSP BlackRock mutual fund said it plans to mobilize around Rs2,000 crore from the new fund offer, an open-ended equity growth scheme, S. Naganath, president of DSP BlackRock AMC, had said at the time of the launch.
With Ulips, their main competitor, reeling under the negative publicity over commissions in addition to the regulatory ban, asset managers have set ambitious targets for their marketing machines.
Ulips are hybrid products. The premiums collected from Ulips are predominantly invested in equities and bonds, while a portion of the fund is kept aside as insurance.
Sundeep Sikka, chief executive officer (CEO) at Reliance AMC, which manages assets worth Rs1.11 trillion and is currently in the process of raising money through its debt-oriented hybrid umbrella scheme—Reliance Dual Advantage Fixed Tenure Fund—does not want to give a number. “We will be launching one scheme under this umbrella fund every month,” he said. “It is difficult to earmark a target for this fund, as each scheme under this umbrella fund will collect different amounts.”
While other fund houses, too, are not revealing expectations, experts say a good marketing effort could raise Rs500-800 crore each. “The amount collected depends on the brand value of the fund house, how active the IFA (independent financial advisers) channel is and how well you are able to motivate the national and regional distributors,” said Vijai Mantri, CEO of Pramerica, which is awaiting Sebi clearance to launch mutual funds. A collection of Rs800-850 crore would translate into a good marketing effort, he said.
Hemant Rustagi of Wiseinvest Advisors Pvt. Ltd, an investment advisory firm, said the regulatory controversy has turned the attention of investors to the lack of transparency and high commissions associated with Ulips. But he is not sure if this will immediately translate into inflows for mutual funds. “When the market is doing well, the risk appetite changes. So people who were not ready to invest when the Sensex was at 8,000 are willing to come in at 17,000,” he said.
Dhirendra Kumar, CEO, Value Research Online, a Delhi-based mutual fund tracker, said there is no correlation. “It is just a coincidence that more NFOs are coming at a time when the debate on Ulips is on,” he said.
For example, Birla got approval for its India Reforms Fund three months back, but could not launch it at the time due to rough market conditions.
Equity mutual funds had raised just Rs2,424 crore from 12 NFOs since August, when new rules banning upfront commissions for distributors came into force. Following the crackdown on commissions, only new fund houses were granted permission to launch NFOs. They included Axis Asset Management Co. Ltd, Edelweiss Asset Management Ltd, IDBI Asset Management, Religare and Mirae Asset Global Investments (India) Pvt. Ltd. Funds that already had a full suite of products only got to launch some non-traditional ones such as a global mining fund (DSP BlackRock), a global agri business fund (Deutsche) and a Hang Seng index fund (HSBC AMC).
Kumar of Value Research says the cost implications of launching funds today are entirely different due to the no-load structure, and fund houses prefer to sell existing schemes. “Most of the upcoming funds will be equity-oriented as many new fund houses do not have the complete range of products yet,” he said.
In August, the market regulator had scrapped entry loads in mutual funds. Following this, fund offers almost disappeared from the industry that currently manages assets worth Rs7.69 trillion. Sebi was also uncomfortable in approving NFOs for schemes that had similar asset-allocation structures as existing ones. Many of the older fund houses are getting to launch NFOs not very different from existing schemes.
Said Jaydeep Kashikar, director, Brainpoint investment Centre Pvt. Ltd, a Mumbai-based financial adviser, “Most of these NFOs are me-too offers.” “There is no USP (unique selling proposition) and these are not any different from the existing schemes. Though these may be slightly more remunerative for the advisers, there is no upside in these NFOs for investors, so we stay away.”
Rustagi also says he does not advise his investors to invest in any new fund offers.
Fund managers say the rush to launch funds is also because of the new rules that will come into force from 1 July. “The NFO period will be reduced to 15 days from 30 days,” with effect from that day, said Suresh Soni, CEO, Deutsche AMC. “Some players may be concerned that they may not be able to achieve their NFO collection targets when the NFO period gets halved.”
n.subramanian@livemint.com
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First Published: Wed, May 12 2010. 10 44 PM IST