One fund launch a day – Mutual Funds go for the kill with NFOs
The pace has accelerated from roughly one new scheme every four days in June to nearly one a day in July and August.
The increase has been particularly visible in passive equity products.
Mutual fund houses have stepped up new fund launches in recent months, with the pace reaching nearly one scheme a day in July and August, led by growing activity in equity and passive products.
Seven schemes completed allotment in June, raising Rs 460 crore. The number jumped to 25 schemes in July, which mobilised Rs 2,022 crore. The August calendar has around 36 schemes opening (20 already opened) during the month, taking the number of schemes launched or lined up across the three months to 58.
The pace has accelerated from roughly one new scheme every four days in June to nearly one a day in July and August.
Passive equity drives the launch surge
The increase has been particularly visible in passive equity products. In July, fund houses launched five index funds and 11 ETFs, together accounting for 16 of the 25 schemes that completed allotment. The two categories mobilised Rs 351 crore and Rs 156 crore, respectively.
The August pipeline continues to show strong interest in passive equity products, alongside actively managed equity funds. Among the launches are UTI Nifty 500 ETF, UTI Nifty 500 Index Fund, Axis Nifty Energy Index Fund, Axis Nifty Energy ETF, Kotak Nifty Bank Index Fund and Edelweiss Nifty REITs & Realty Index Fund.
Of the 26 schemes in the August list, 15 are classified as equity, with several of these being index funds or ETFs.
The rise in passive launches also reflects how fund houses are using existing indices as a base for developing newer strategies. Shweta Rajani of Anand Rathi Wealth noted that innovation in the space is increasingly likely to come through thematic and passive products.
“If you want to do any innovation, it has to be either in the thematic category or in the passive space,” Rajani said.
She said passive strategies can also serve as the base for newer active and smart-beta products, with some strategies moving from passive index construction towards active momentum and other factor-based approaches.
Launches rise faster than collections
The increase in the number of launches has been much sharper than the rise in money mobilised. July’s 25 schemes raised Rs 2,022 crore, more than four times the Rs 460 crore collected by seven schemes in June.
This contrast is even more in passive products, where NFO collections have generally remained modest despite the increase in launches.
A product manager at a mutual fund house, who did not wish to be identified, said the recent increase in passive launches is linked partly to market conditions. With markets relatively volatile ( despite positive investor sentiment), fund houses have been using the period to complete their passive product baskets and expand the options available to investors.
“Passive is all about completing the baskets and completing all the options that you want to give to investors,” the product manager said.
He agreed that passive launches are not driven by NFO-period collections in the same way as other fund launches. Collections can be relatively small, but the objective is to have the product available for investors.
The product manager said passive investing has picked up over the past one to two years as investor awareness has increased. With the basic passive basket largely complete for many fund houses, the next opportunities could come from sectoral, thematic and hybrid passive products, where permitted.
SIFs add to product expansion
The expansion in the industry’s product universe is also visible in Specialised Investment Funds (SIFs), with 12 schemes launched or lined up between June and August.
Six SIFs completed allotment in June and raised Rs 1,740 crore, followed by three schemes in July that mobilised Rs 788 crore. The August pipeline has another three SIFs, all focused on equity long-short strategies.
June’s launches included Altiva Equity Ex-Top 100 Long-Short Fund (Edelweiss AMC), DynaSIF Equity Ex-Top 100 Long-Short Fund (360 One AMC), iSIF Equity Long-Short Fund (ICICI Pru AMC), iSIF Active Asset Allocator Long-Short Fund, Platinum Hybrid Long-Short Fund (Mirae Asset Investment Managers) and RedHex Hybrid Long-Short Fund (HSBC MF).
In July, Summit Equity Long-Short Fund (Invesco MF) raised Rs 181 crore, while Infinity Hybrid Long-Short Fund (Kotak AMC) and Prism Hybrid Long-Short Fund (Jio BlackRock AMC) together mobilised Rs 608 crore.
The August pipeline includes Magnum Equity Ex-Top 100 Long-Short Fund (SBI MF), Apex Equity Ex-Top 100 Long-Short Fund and Apex Equity Long-Short Fund (Aditya Birla Sun Life MF).
NFOs largely an AMC-driven phenomenon
The increase in launches does not necessarily mean investors are actively seeking NFOs. According to Amol Joshi, founder, PlanRupee Investment Services, the industry’s maturity and the large number of existing schemes mean investors generally do not specifically ask for new funds.
“In my experience, the average investor does not ask for NFOs,” Joshi said, adding that the industry already has established fund houses, funds and thousands of ongoing schemes.
He sees two key factors behind the continued flow of NFOs: AMCs expanding their product bouquets and the increasing number of fund houses. The product universe has evolved from conventional large-, mid- and small-cap index funds to smart-beta strategies such as momentum and value, while new AMCs entering the industry also need to build their initial product ranges.
Joshi said NFOs therefore remain more of an AMC-side phenomenon, except when they offer a genuinely differentiated proposition, such as a new investment solution or category for which investors are specifically looking.
“Unless there is a unique product proposition, we would not necessarily recommend an NFO,” he said.
AMCs also have a commercial incentive to keep launching new schemes. NFOs allow fund houses to build assets in newer categories and generate management fees as those assets grow, while also expanding their product shelf and creating more avenues to cross-sell to existing investors. For newer fund houses in particular, NFOs can help establish a presence across categories and build assets under management from the outset.
But Rajani added that not all NFOs should be interpreted as generating additional money for the mutual fund industry, with investors likely to allocate money to existing funds even in the absence of new products.
“If I look at the net flows, it’s not that I’m getting excess net flow into the market because of these unique NFOs. Even if there were no NFOs, I would expect similar kind of flows to come into the market,” she said.
For conventional categories, Joshi said distributors prefer established funds with a demonstrated performance record across market cycles. They look at how a fund has performed through bull, flat and bear markets, as well as factors such as fund-manager churn.
“If there is no fresh or genuinely new offering, we prefer something we are familiar with and that has already weathered different market cycles,” he said.