Mutual funds' NFO collection surges 4 times to Rs 22,000 crore in Q2

During the quarter that ended in September 2023, 48 schemes were launched, which were cumulatively able to garner Rs 22,049 crore at the NFO period.

Mutual funds’ collection through new fund offerings (NFOs) surged nearly four times to Rs 22,000 crore in the July-September period this fiscal compared to the preceding quarter as 48 new schemes hit the market.

"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," Gopal Kavalireddi, Vice President of Research at FYERS, said. "With investors firmly believing in the India growth story and the emergence of new segments in organised space, more and more companies are seeking funds through primary and secondary market offerings".

"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," he added.

During the quarter that ended in September 2023, 48 schemes were launched, which were cumulatively able to garner Rs 22,049 crore at the NFO period. This was way higher than 25 NFOs that collected Rs 5,539 crore during their NFO period in the June quarter, according to data compiled by Morningstar India.

Usually, NFOs come during a surging market when investor sentiments are high and optimistic. The NFOs were floated to capitalise on the mood of investors and attract their investment as they were willing to invest at that time.

Feroze Azeez, Deputy CEO of Anand Rathi Wealth, said this huge inflow in NFOs is primarily due to the overall sentiment towards equity. Explaining further, he said that 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.

Additionally, the increased risk appetite of investors for financial assets, especially equities, is prompting AMCs to introduce fresh offerings, FYERS’ Kavalireddi said. 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 added.

Categories like differentiated passive strategies thematic or sector funds which tend to be the flavour of the season are the most one for fund managers.

The highest number of schemes were launched in the sectoral category — 13 followed by 12 other ETFs. In terms of fund collection, the sectoral category amassed Rs 5,725 crore, followed by multi-asset allocation fund (Rs 4,791 crore), multi-cap fund (Rs 3,277 crore) and liquid funds (Rs 3,083 crore).

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, FYERS’ Kavalireddi said.

Anand Rathi Wealth’s Azeez said that NFOs are expected to continue in the thematic, sectoral, and passive categories. In terms of new schemes that collected the highest AUM during that quarter are ICICI Pru Innovation Fund, Baroda BNP Paribas Value, Bajaj Finserv Flexi Cap, HDFC Defence Fund, and HSBC Consumption Fund.

Azeez suggested investors not to jump 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.