Stock market: MFs collect nearly Rs 1 lakh cr via NFOs in 2021 during strong stock market rally
However, current stock market volatility may prompt asset management companies (AMCs) to limit the launch of NFOs this year, said MyWealthGrowth.com co-founder Harshad Chetanwala.
Ankit Yadav, Wealth Manager (US) and Director of Market Maestro, also believes that NFOs will decline in 2022 and little will happen in 2023 when rates start to change.
According to data compiled by Morningstar India, there were 140 new fund offerings (including closed-end funds and ETFs) in 2021. These managed to garner a respectable Rs 99,704 crores in their inception phase. launch.
This was far more than 81 NFOs launched in 2020 and cumulatively these funds were able to raise Rs 53,703 crore.
“Given the strong rally in the markets as well as the need to fill the product gap created after the recategorization and provide investors with new themes in which to invest, asset management firms have launched a plethora of new programs throughout the year (2021),” Morningstar noted.
Usually, NFOs come during a booming market when investor sentiment is high and optimistic. The stock market as well as positive investor sentiment continued to rise after March 2020. This is when the launch of NFOs started, Chetanwala said.
NFOs were launched to capitalize on the mood of investors and attract their investments as they were ready to invest at that time, he added.
“The main fact as a wealth manager that I see in a low rate scenario is that borrowing becomes easy with easy money fluctuating around companies that tend to bring their IPOs and AMC companies (asset management company) are prone to NFOs,” said Ankit Yadav of Market Maestro.
In 2020, central banks around the world cut rates and brought them to historic lows in 100 years of history. The rates remain unchanged in 2021. Therefore, to use low rates, AMC companies bring in NFOs, he added.
The maximum number of funds (25) was launched in the index fund segment, which raised Rs 4,082 crore, followed by other ETFs (24), which raised Rs 7,482 crore and fixed-term plans ( 23), which raised Rs 5,057 crore.
In addition, investors were attracted by international funds and sector or thematic funds. The AMCs launched 12 sector or thematic funds, which raised Rs 13,237 crore and launched 12 foreign funds of funds, which mopped up Rs 6,351 crore.
Experts believe that the dominance of index funds and ETFs (exchange-traded funds) among NFOs is not surprising, due to several factors.
Existing AMCs have no restrictions on the number of passive products they can make, while there are limits on other types of funds, said Vasanth Kamath, founder and CEO of Smallcase.
“Furthermore, as investors (retail, HNI, institutional) expand and diversify their portfolios, they prefer to take an indexing approach to new exposures and new types of assets, making it both efficient and simple rather than having to create their own frameworks and strategies on these universes,” he said.
Additionally, the skyrocketing growth of new demat accounts is forcing fund companies to offer a broader and more diverse range of ETFs that were lacking in the exchange-traded form factor, he added.
Another factor for NFO higher in the index category could be strong performance, with the index up over 20% last year.
Moreover, the penetration of Indian investors to the index or ETF is low. Thus, AMCs are trying to capture their market share, said Yadav of Market Maestro.
Similarly, international equity markets have performed well in recent years and even investor interest in geographic diversification has increased, leading many AMCs to offer international funds.