Stock Market

Mutual funds line up 35 new fund offers; will investors bite?

Himadri Buch

With mutual funds gaining popularity among retail investors, asset management companies have filed draft offer documents for as many as 35 new fund offers over the last three months.

DSP BlackRock Mutual Fund, Birla Sun Life Mutual Fund, Kotak Mahindra Mutual Fund,  UTI Mutual Fund, DHFL Pramerica Mutual Fund, SBI Mutual Fund, ICICI Prudential Mutual Fund, IDFC Mutual Fund, Mahindra Mutual Fund, are among the fund houses that have filed the offer documents with the Securities and Exchange Board of  India.

A large number of these schemes are aimed at investment in equity and equity-related securities and are open-ended. Small cap, capital protection, pharma, value fund, Sensex index fund, Nifty index fund, exchange traded funds are some of the themes that investors can choose from.

Also, a there are a few fixed term plans and hybrid funds as well.

The last time there was such a flurry of new scheme launches was during the bull market of 2007.

But the question is if there will be enough demand for these schemes, given that inflows into equity schemes have slowed down in the last few months.

According to AMFI data, equity funds saw net inflows of Rs 22,233 crore in the first half of the current financial year (April-September), compared to Rs 52,000 crore during the same period last fiscal.

Dhirendra Kumar, Chief Executive Officer, Value Research Online Kumar is skeptical.

“There is not much appetite in the market for so many new funds,” he told, adding that it did not make sense for investors to put money in new schemes, and they should check the track record of the old offerings of the fund house before taking a decision.

“Some fund houses go for new schemes as there is less accountability for old schemes,” Kumar added.

He says it made sense for fund houses to come out with NFOs during the bull market of 2007 because the economics of a new fund launch was favourable.

Asset management companies could amortise the promotional expenses of a new fund over 4-5 years. This meant that the impact of the expenses would not be immediately felt in the net asset value. Secondly, AMCs could pay commissions to distributors from the proceeds of a new fund and pass on that cost to the investor in the form of an ‘entry load’. Both rules are no longer applicable.

Back in 2010, the then SEBI chief CB Bhave had at a public event questioned the need for so many schemes  by asset management schemes.

“There are 30-odd fund houses and around 3,000 schemes in the market. An investor will have no idea of which scheme is good for him. Are new fund offers (NFOs) being launched even while the existing offers are at their sub-optimal levels? Or is that there are wrong incentives for launching NFOs,” Bhave had said.

Interestingly, many mutual fund companies have approached SEBI for launching plans with Hindi names so that investors in rural areas understand the objectives of the schemes in a better manner. The move is seen as moving away from the old tradition of English names for investment schemes.

‘Badhat Yojana’, a scheme aimed at capital appreciation. The offer document of this scheme has been filed by Mahindra Mutual Fund.

According to distributors, mutual funds are rushing to launch new schemes as recent fund launches have also received good response from investors.

Also, they said that the NFO market has picked up as investor confidence in equities is back after the spectacular rebound in stock prices from lows of February.

Over the last year, equity benchmarks are up around 9 percent and several funds have delivered even better returns.