Investors prefer existing funds over new fund offers

Existing funds have attracted Rs. 37,155 crore in 2014 while new equity fund launches have collected Rs. 6,353 crore.

New fund offers, especially closed end funds, might be the flavor of the season but investors seems to have more faith in old schemes with proven track record.

An analysis of the inflows in new equity scheme launches (excluding ETFs) in 2014 (Jan-Sep) shows that these schemes have collectively mopped up Rs. 6,353 crore. The existing funds on the other hand have mopped up Rs. 37,155 crore, shows AMFI data.

Inflows in existing funds vis-à-vis collections through equity NFOs

This shows that distributors have continued to recommend existing funds to their clients. Together, existing funds and new fund offers have mopped up Rs. 43, 508 crore in calendar year 2014.  Out of this Rs. 43,508 crore, NFOs contributed 15% or Rs. 6,353 crore. “We would always recommend funds with a proven track record. We would consider a new fund offer only if it has to offer something new,” says Nikhil Kothari of Etica Wealth Management.

Fund officials say that the rising number of SIPs is contributing to higher inflows in in existing schemes.  According to data provided by CAMS, the industry saw 15.8 lakh new SIP registrations in 2013. In 2014, the industry has already registered 13.08 new SIPs till August. CAMS aggregates 91% industry data in its data bureau services.

There is no denying that closed end funds have collected sizeable inflows in the recent past. However, not all schemes have met with the same success. Only the larger fund houses have been able to garner a sizeable chunk of the inflows.

Inflows in existing funds vis-à-vis collections through equity NFOs

Indian markets have been on fire post the formation of new government. The BSE Sensex has rallied 10% since May 2014 when the Modi was elected to power. Advisors attribute the renewed optimism in equity funds to the overall bullish sentiments surrounding the Indian economy.

Compare this to 2013 when the BSE Sensex rallied 9%. This upside was not enough to pull investors into equity funds. In fact, equity mutual funds saw net outflows of Rs. 5,559 crore in 2013. Advisors say that many investors took this opportunity to book profits. “Many investors were waiting to see their portfolios in green. Investors exited as they thought that the market may correct which didn’t happen. They are coming back after seeing a sustained rally,” says Hemant Rustagi of Wiseinvest Advisors.   

As compared to 2014, new equity fund offers were few and far between in 2013, collecting Rs. 2,361 crore.

However, the tide seems to be turning in favour of equity funds. This is evident by the steady rise in equity folio counts. From May till September, equity folio counts by increased by 4.65 lakh. While fund managers are predicting that the market is only likely to go up from here it remains to be seen if equity funds continue to charm retail investors.