As the equity markets revive, MF line up new fund launches

From November 2013 till June 2014, the industry has collected Rs. 4,973 crore from 37 new equity fund launches.

Buoyed by the good response received from investors in the recent fund launches, fund houses are rushing to file offer documents with SEBI to launch more closed-end funds. At least a dozen fund houses have filed offer documents with SEBI to launch equity funds, most of them being closed end.

Apart from closed end funds, other flavors like ETFs, open end funds, international fund of funds and a Shariah fund are also in the pipeline.

The pace of new equity fund launches picked up from November 2013 when the Sensex was hovering around 20,700 levels. The market is up 23% since November. In the last eight months as many as 37 equity funds were launched which mopped up Rs. 4,973 crore.

The NFO rush

Distributors are optimistic that most of these funds would receive good response from the market. “Investors interest has revived due to positive sentiments. The market can absorb these funds since there is an appetite,” said Vinod Jain of Jain Investments.

It is no surprise then that equity net inflows were at six-year-high at Rs. 7,309 crore in June.

Recently, ICICI Prudential, Reliance and Sundaram have launched ICICI Prudential Growth Fund, Reliance Capital Builder Fund – Series A and Sundaram Top 100 Series III fund.

More closed end funds are in the pipeline. SBI has approached SEBI to launch a total of four funds, including a Shariah Equity Fund. DSP BlackRock and Canara Robeco are also in the fray to launch closed end funds.

Offer documents filed with SEBI

The closed end funds which were launched in the recent past have managed to deliver superior returns.

The trend of closed end fund started with IDFC’s Equity Opportunities Fund which was launched in April 2013. The fund collected Rs. 240 crore from NFO and has delivered an absolute return of 86% over a one year period. The fund house came up with two more series of this fund.

Union KBC also achieved its target of 30% return in eight months. Similarly, ICICI Prudential Value Fund has delivered 43% return YTD beating its benchmark BSE 500 which delivered 25% return. Axis Small Cap and Reliance Closed End Fund Series A have delivered 52% and 33% return YTD respectively. 

Bullish on banks

Apart from closed end fund houses like SBI and Kotak have filed offer documents for bank ETFs. SBI is also planning to launch an actively managed banking fund called SBI Banking and Financial Services Fund.

According to Value Research, banking funds have delivered an average of 40% absolute returns over a one year period. Currently there are about 13 banking sector funds which manage Rs. 3,104 crore. Vinod says that he is not so bullish on banks. “Banks will raise equity to meet their lending demand. If they issue equity, share prices won’t move up. Once the supply increases there should be a demand to absorb this equity. There will be a limited upside on the banking stocks,” he added.

More triggers

Just like Union KBC Trigger Fund, Baroda Pioneer is also planning to launch a trigger based fund.  However, Baroda Pioneer has an ambitious target. Union KBC Trigger Fund wound up after delivering 30% return in eight months. Baroda Pioneer’s trigger fund is aiming to deliver 50 % return.

Baroda Pioneer Trigger Fund will wind up the scheme within three years or if the growth option of direct plans hits Rs. 15 within three year, whichever is earlier.

Sunil Subramaniam, Deputy CEO, Sundaram Mutual Fund says that closed end funds are targeted to bring retail investors. “We are focusing on bringing retail investors in closed end funds so that they remain invested for a reasonable time. We can also get investors in open end funds but the problem is that the constant entry and exit of investors affects the performance of the fund. Open end funds are more suited for HNIs who know when to enter and exit. In closed end funds, fund managers have more control over the fund,” said Sunil. Sundaram has launched seven closed end funds so far which have collected Rs. 300 crore. The fund house is planning to launch six more closed end funds in the near future.

It remains to be seen if these funds live up to their expectations.