New fund offerings (NFOs) by mutual funds and their collections have hit 11-year low amidst weak equity market conditions and regulatory changes on distributor remuneration.
According to Association of Mutual Funds of India (AMFI) data, the mutual fund industry came out with just 7 equity NFOs during the financial year 2011-12 and raised an aggregate of only Rs 354 crore through these offerings — generally considered as prime tools by mutual fund houses to raise fresh funding along with roping in new investors into their equity investments.
The amount raised last fiscal is well short of the Rs 3,299 crore raised through 23 equity NFOs in 2010-11. The offerings in the last fiscal were even lower than the estimates for 2008-09, when the markets were reeling under the impact of the global financial meltdown. Prior to 2011-12, the year 2001-02 had seen the lowest collection at Rs 411 crore through 17 NFOs in the last decade.
Industry experts say the trend could be a pointer to the fact that investors now take more informed decisions and invest in schemes that have a good track record.
“It is a healthy trend that schemes that have performance track record are saleable. Earlier, if you did not have performance, you could come out with new NFO and collect money; but now both new and old mutual funds that come out with fresh schemes will have to work hard, create a track record before they get strong inflows,” said Nimesh Shah, MD and CEO, ICICI Prudential AMC. However there are others who feel that a rally in the market may see NFOs coming back.
“If the market rallies for six months and then you may see fresh NFOs and collections from them. While the headwinds on equity market are affecting them, change in regulation on commission structure has also affected them on distribution front,” said Nitin Rakesh, CEO & MD, Motilal Oswal AMC. “The industry is now operating in a new structure and that will take a few years to settle down.” If new funds failed to attract investors on account of the lack of a solid track record, the overall net inflow into the equity schemes within the industry has been equally bad.
While the total sales for equity mutual funds stood at Rs 47,921 crore for the 2011-12, the net inflow (adjusted to redemptions) into equity mutual funds for the year 2011-12