Mutual Fund companies collect ₹1.08 lakh cr via new fund offerings in FY22

Riding on intense retail investors' interest and a sharp rally in equity markets, asset management companies (AMCs) launched 176 new fund offerings (NFOs) in 2021-22, garnering a whopping ₹1.08 lakh crore.

With liquidity tightening, interest rates on the rise, stock market consolidation in progress, return to work from office, there could be subdued interest in NFOs going forward. While fixed maturity plans (FMPs) category could see considerable launches, the same cannot be expected from other categories, Gopal Kavalireddi, Head of Research at FYERS, said.

Also, almost all AMCs have launched new schemes across most categories, thereby fillings the earlier existing product gaps that was created post-recategorization, he said.

"Gaps in investment objectives, interest of investor in specific themes, availability of funds for deployment, credibility and reputation of fund managers, and performance of stock markets could dictate the quantum of new launches," he added.

According to the data compiled by Morningstar India, there were 176 new fund offers (including closed-end funds and ETFs) in 2021-22. These managed to collect a staggering ₹1,07,896 crore during their inception stage.

This was way higher than 84 NFOs floated in 2020-21 and cumulatively, these funds were able to mobilize ₹42,038 crore.

Usually, NFOs come during a surging market when investor sentiment is high and optimistic. The stock market along with the positive investor sentiments kept surging post-March 2020, leading to the launch of higher number of NFOs.

The NFOs were floated to capitalise on the mood of investors and attract their investment as they were willing to invest at that time.

Coincidentally, over the same period, the Indian capital markets Sebi along with Association of Mutual Funds of India (AMFI) brought in considerable investor-friendly changes which included exit-load removal, entry-load capping, categorization and reorganization of mutual fund schemes, direct plans, risk-o-meter, addition of new category, Flexicap, and other policies, thus ensuing investor awareness and bringing about clarity and transparency in investments.

With the need to improve income levels, and also with a view of long-term investing, along with measures taken by Sebi and Amfi resulted in a flurry of NFOs across many categories of mutual funds-- equity and debt alike, Kavalireddi said.

Most of the schemes were launched in the index and ETF category, to support both - passive and active investors.

The maximum number of funds (49) were launched in the index fund segment, which amassed ₹10,629 crore, followed by other ETFs (34), which collected ₹7,619 crore and fixed-term plans (32), which mobilised ₹5,751 crore.

In addition, investors were attracted to international funds and sectoral or thematic funds. The AMCs launched overseas funds of funds, which mopped up ₹5,218 crore and 11 sectoral or thematic funds, which raised ₹9,127 crore.

Experts believe that the dominance of index funds and ETFs (exchange-traded funds) within NFOs is not surprising, owing to a couple of factors.

The ongoing financial year 2022-23 saw the launch of only four NFOs, garnering a total of ₹3,307 crore, with ICICI Prudential Housing Opportunities Fund taking in the lion's share of ₹3,159 crore.

Further the latest ban by Sebi on NFOs will delay the launch of around 15 schemes, as the market regulator is focused on streamlining the issue of pool accounts, upgrading technology at AMCs, two-factor authentication among others to avoid potential frauds besides minimising operational risk, Kavalireddi said.

Also, the latest issue of front running of stocks in Axis Mutual Fund has given rise to issues of trust and credibility of fund houses and their respective fund managers, he added.

In April, Sebi had barred the launch of new mutual fund schemes till July 1.