Saturday , July 13 2024

As the market stabilised, mutual fund schemes started gaining momentum

Ahmedabad: The pace of new fund offerings (NFOs) by mutual funds is likely to pick up further as the election uncertainty has been dispelled, volatility has reduced and share prices remain reliable. 14 funds have approached Sebi for NFO approval since the election results were announced. In addition, about two dozen NFOs have approached Sebi for approval in the last two months.

The pace of new fund launches, especially in equities, has been strong in the past one year amid a positive sentiment in the stock markets. In calendar year 2023, mutual funds launched 51 active equity schemes and collected a total of Rs. 36,657 crore through them.

In the first five months of calendar year 2024, mutual funds launched 19 active equity fund schemes and raised Rs. 23,515 crore. If we include SBI Automotive Fund NFO of Rs. 5,710 crore, the total investment is around Rs. 30,000 crore.

It is easier for funds to raise money through NFOs than through their existing schemes as past performance is not required to sell an NFO, only the details of the fund are required. In such a situation, new offers increase during a positive stock market environment. Investors should do proper analysis before investing money in NFOs as most of the new offerings are in high-risk subject areas.

New offerings in equity are linked to market performance. This is evident from past trends. Of the NFO applications with SEBI this month, eight were from active equity funds while seven were from passive equity funds. The common category in all is business cycle funds.

Under the rules, a fund is allowed to offer only one scheme in active equity (excluding sectoral and thematic categories). Since most fund houses have funds in all categories of active funds, most of the offerings are in the thematic and passive categories.

Mutual funds have also seen interest in the hybrid fund category following the change in taxation of debt funds in April 2023. The multi asset allocation category saw the highest number of offerings in the hybrid space with 12 offerings in FY24.