Why NFO mobilisation is at 9-year high

Equity NFOs had a boom period in 2005-2008 where over 170 new equity schemes hit the market.
Sector experts appear to have learnt a big lesson from the mistakes of the previous bull run, says Chandan Kishore Kant.
Illustration: Uttam Ghosh/Rediff.com

Asset mobilisation through new fund offers (NFOs) in the equity segment has hit a nine-year high.

India's burgeoning fund industry collected nearly Rs 16,700 crore last year -- the highest since the 2008 global financial crisis.

Fifty-two new equity schemes were launched in 2017; most of these are close-ended.

The total NFO count last year was less than that in 2014. However, the average offer size helped the industry mobilise almost double of what it did in 2014.

The average NFO size in 2017 has been Rs 321 crore.

Sector experts said NFOs were something the industry cannot do away with. This is in contrast to the view in circulation after 2008, which held NFOs were going out of fashion.

In fact, NFOs had taken a back seat between 2009 and 2013.

However, the unprecedented inflows from domestic investors have helped reverse the trend.

"The rising trend of NFO launches will continue," says Swarup Mohanty, chief executive officer, Mirae Asset Mutual Fund. "As long as the markets remain strong, I believe the trend will only rise."

Fund houses that have recently offered equity NFOs include Axis, IDFC, Sundaram, ICICI Prudential, BNP Paribas, Reliance Nippon Life, Aditya Birla Sun Life, HDFC, and DSP BlackRock, among others.

The recent housing fund from HDFC has led to a lot of action among investors.

Industry sources said the new offer from the fund house had raised nearly Rs 3,500 crore.

If this amount is added to the total mobilisation, the overall money raised will easily shoot up beyond a staggering Rs 20,000 crore -- bringing it very close to what the fund houses garnered back in 2008.

Though equity NFOs are coming back strongly, sector experts do not see it as a strong and preferable mode of increasing investors' money.

No doubt, a set of investors are still looking for equity NFOs.

However, when seen in the perspective of total inflows in equity schemes, money coming in through new launches looks quite dwarfed.

For instance, so far, only about 12 per cent of overall flows in equity have come through NFOs.

This suggests that a majority of investors -- new and existing -- prefer established schemes with a performance track record.

The total inflows in equity schemes stand at Rs 1.36 lakh crore.

"Though NFOs have gathered quite a sum this year," says Dhirendra Kumar, CEO of fund-tracking firm Value Research, "I won't go on to say that new launches are making a big comeback. Though NFOs, mainly close-ended, will keep coming from fund houses, dominant inflows will go for existing schemes."

• MONEY TIPS

Equity NFOs had a boom period in 2005-2008, where over 170 new equity schemes hit the market, raising Rs 1.12 lakh crore.

Sector experts appear to have learnt a big lesson from the mistakes of the previous bull run.

Investment experts are discouraging investors from making huge investments, with stocks going up sharply.

Instead, impetus is being given on systematic investment plans (SIPs) and disciplined investing.

Results are positive, as the industry now enjoys a substantial 18 million SIP accounts, which bring in nearly Rs 6,000 crore of consistent, sticky, and long-lasting monthly inflows.