NFO mobilisations reduced to a trickle since 2010

Since 2010, 48 equity fund NFOs collect Rs 3596 crore  

Gone are the days when a fund collected Rs 5000 to Rs 6000 crore from its NFO. Only 12 equity funds have been able to collect Rs 100 crore each or in excess of that since 2010.

A host of reasons are responsible for this slowdown. Lack of new investment themes, uncertain markets, distributor’s unwillingness to sell new funds and regulatory curbs have made the AMCs hit the stop button on new fund launches.

Data provided by Value Research shows that a total of 48 funds have been launched since 2010 but only a handful of them have been able to attract distributors and investors interest.

DSP Black Rock Focus 25 launched in April 2010 tops the chart, collecting Rs 478 crore, followed by SBI PSU Fund launched in May 2010 which collected Rs 442 crore. The third fund on the list of top NFO mobiliser is HSBC Brazil Fund which mopped up Rs 313 crore.

In 2012, only one fund - Axis Focus 25 Fund managed to collect a respectable Rs 250 crore from 16000 albeit with a lot of support from Axis Bank.

A few funds have had to make do with modest collections in the range of Rs 1 crore to Rs 10 crore. 

A major reason for the slowdown of new fund launches is that many AMCs have completed their product basket and there are hardly any new investment opportunities to offer apart from debt funds. Moreover, the marketing budgets have dried down following the ban on entry loads.

Another reason for the slowdown in NFOs has been SEBI’s reluctance to clear similar looking funds. Moreover, SEBI has mandated AMCs to collect a minimum of Rs 20 crore in debt funds and Rs 10 crore in equity funds in order to discourage casual fund launches.

“In the past, a confluence of factors contributed to the success and scale of NFOs – amortization of initial issue expenses, entry loads and more importantly, buoyant markets. Compared to 2007/2008, most of the established fund houses have comprehensive product ranges and the NFOs are dominated by new players along with FMPs. We have seen the launch of new income funds over the last few years and Franklin Templeton has witnessed good success in this space. A new fund might not attract the huge sums like in the past due to the change in environment and new regulations, but can build scale if the strategy plays out positively.” said Jaya Prakash K, Head-Products, Franklin Templeton Investments. 

 “Markets have not been supportive for fund houses to launch new schemes. Earlier fund houses were allowed to charge 6% Contingent Deferred Sales Charge (CDSC) and now they have to incur the marketing costs from their own pockets. With so much duplication in funds, the regulator has asked fund houses to merge their schemes. Many distributors are reluctant to sell a new fund unless the fund is unique or till it builds a track record,” observes Gajendra Kothari of Etica Wealth Management.

From 2010, the NFO period has been slashed to fifteen days from thirty days earlier. Fund officials say collections during NFOs don’t matter much. They say that a fund should be able to retain and grow its assets post NFO. Take for instance, Templeton India Opportunities Fund launched in December 2009. The fund collected Rs 308 crore from its NFO and now manages Rs 2744 crore. Similarly, Templeton India Templeton India Corporate Bond Opportunities Fund launched in November 2011 collected Rs250 crore from the NFO and has grown to Rs 3552 crore. On the contrary, there are funds which collected huge sums from their NFOs and have lost assets over the years.

Top NFO mobilisers since 2010