Expensive valuations, volatility in equity market hit new fund offerings inflows in September quarter – check details

Asset management companies mobilised Rs 17,805 crore through 67 new fund offerings (NFOs) in the September 2022 quarter, a 64 per cent decline from the year-ago period, on expensive valuations and high volatility in equity markets.

However, sequentially performance was much better. The first quarter (April-June) of the current fiscal saw only four NFOs, garnering a total of Rs 3,307 crore, according to data compiled by Morningstar India.

There was a lull in the NFO space in the first quarter due to Sebi's restrictions on launching new schemes.

Generally, NFOs hit markets due to several reasons, like asset management companies (AMCs) considering that there was a gap in their product offerings, and they want to build access to various market scenarios using particular strategies.

According to Morningstar India, the second quarter of 2022-23 saw 67 new fund offerings. Cumulatively, they were able to garner Rs 17,805 crore through the NFOs.

In comparison, 43 NFOs floated in July-September 2021, and together these funds were able to mobilise Rs 49,283 crore.

Manish P Hingar, Founder of Fintoo, attributed the lower fund mobilisation to expensive valuations.

"Today, the market is trading at a higher level and is a bit expensive. As a result of that, investors are currently hesitant to enter the market. This is the reason why you may find less amount mobilised in the current quarter," he said.

Another factor could be high volatility in the equity markets, Abhishek Dev, CEO and co-founder of Epsilon Money Mart, said.

Even though new funds launched were less in the quarter under review compared to the year-ago period, liquidity and appetite were better that time, he added.

During the July-September quarter of 2021, fundamentals were improving and sentiments were positive, resulting in markets heading up.

"However, the market dynamics have changed in the last few quarters, it is more volatile due to geopolitical crisis and concerns over high Inflation and rate hikes. This is clearly reflecting in overall fund flows in mutual funds as well as investments in NFOs," Feroze Azeez, Deputy CEO of Anand Rathi Wealth, said.

In the three months ended September 2022, as many as 67 NFOs were launched compared to just four in the preceding quarter.

The negligible launches were due to restrictions imposed by the Securities and Exchange Board of India (Sebi).

In April, the regulator barred fund houses from floating new schemes till the time the industry complied with its norms concerning the pooling of investors' funds by intermediaries and distributors. The deadline for the implementation of the new guideline was July 1.

Also, the regulator had asked fund houses to implement guidelines like dual authentication for redemption and verification of source of accounts while mutual fund investments are made. These measures were aimed at safeguarding investors' interest and boosting investor confidence in mutual fund investing.

The highest number of schemes during the quarter under review were launched in the other schemes category-30, which included 17 other ETFs and 11 index funds. The other schemes collected Rs 915 crore.

In addition, investors were attracted towards debt funds with AMCs launching 23 schemes to raise Rs 6,432 crore and 10 equity funds were floated collecting Rs 8,898 crore.

Within the equity segment, Flexicaps funds witnessed a lot of interest from asset management companies.

Last year, there were many Multicap fund NFOs as this was a newly created category and many AMCs had this gap in their bouquet.

In 2021-22, AMCs launched 176 new mutual fund schemes garnering Rs 1.08 lakh crore. In 2020-21, 84 NFOs were floated and cumulatively, these funds were able to mobilise Rs 42,038 crore.