It was another lacklustre year for equity new fund offerings (NFOs) as volatile markets made investors wary of investing in equity schemes.
Only 13 equity NFOs were launched in calendar year 2013 which managed to mop up Rs 1,512 crore, Morningstar India data show. This is an improvement over the previous two years CY12 and CY11, which saw a total of 17 NFOs garnering Rs 1,089 crore.
“Investors are not keen on putting their money into equity schemes as the markets have been volatile,” said Jimmy Patel, CEO, Quantum MF. BSE Sensex rose about 9% in CY13 but was characterised by sustained volatility.
Another important reason for the slowdown has been Sebi’s insistence on merging schemes and the clampdown on new fund offerings that are not adequately differentiated. “The market regulator has been particular about ensuring that no two schemes launched by the same AMC have similar themes or objectives,” said Patel.
The calendar year 2013 would have been even more dismal had it not been the flurry of close-ended offerings towards the end of the year. Till October, nine equity funds completed their NFOs, collectively mopping up R641 crore. The month of November, however, saw four NFOs mopping up R871 crore.
Quite a few close-ended offerings have drawn a good response from investors despite the lock-in nature of the schemes. For instance, Axis Small Cap Fund is estimated to have collected around Rs 180 crore, while Reliance Close-Ended Equity Fund Series A mopped up about R250 crore.
Industry observers say the close-ended nature of these schemes had helped ensuring a sufficiently high payment of commission to distributors, who are primarily responsible for pushing these schemes to investors. Upfront commission for close-ended equity schemes can be as high as 6-7% compared with 1-2% for open-ended equity schemes.
In 2009 and 2010, equity NFOs had mobilised R4,500 crore, while in 2006, 2007 and 2008, the amount stood at more than R20,000 crore in each of the three years.
According to industry observers, Sebi’s ban on entry load in 2009 significantly affected the number of new fund launches on the equity side. Since the ban, equity schemes have seen inflows in 17 months, with net outflows in 2013 at nearly R10,000 crore.