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With the markets touching new highs, equity new fund offerings (NFOs) are back in vogue.
Total amount collected from NFOs in 2014 has crossed the R6,000-crore mark, data collated from Value Research show. This number was less than R1,000 crore for the whole of last year. The NFOs include 12 closed-ended funds and 17 open-ended funds. If separate series of schemes are taken into account, the number of closed-ended schemes total 32.
“Despite the rally, retail investors have not yet come back to equity mutual funds in a meaningful way, but I hope things will improve in the months to come,” said Aashish Somaiyaa, CEO, Motilal Oswal AMC.
Closed-ended funds, in particular, have gained popularity since September last year, with several top fund houses such as ICICI MF and Reliance MF launching such schemes. Experts suggested that fund houses may try to come out with funds with cyclical themes, which may include banking sector funds, industrial funds and infra funds in the coming months.
Fund officials maintain that close-ended schemes help investors stay invested for a long term which will help them capitalise better returns from the equity market. Upfront commission for closed-ended equity schemes can be as high as 6-7% compared with 1-2% for open-ended equity schemes.
Some experts, however, believe that while investors have historically shown a preference for investing in new schemes with NAV of R10, they should look at existing schemes with a track record if the market is on an upswing.
The number of new equity fund launches and the amount mobilised by them have been on a decline since 2009, when Sebi put a ban on entry load. In 2011, only 10 new equity funds were launched that managed to mop up about R612 crore. In both 2009 and 2010, equity NFOs had mobilised over R4,500 crore, while in 2006,2007 and 2008, the mobilisation amount stood at more than R20,000 crore in each of the three years.
According to experts, stringent guidelines and a wait-and-watch approach adopted by asset management companies towards launching new equity funds, in the light of an uncertain market environment, had resulted in the launch of fewer equity NFOs over the last few years. Sebi's emphasis on new fund offers with differentiated themes and encouragement of scheme mergers has also put the brakes on NFOs.