The new fund offers (NFOs) of closed-ended Rajiv Gandhi Equity Savings Schemes (RGESS) of IDBI MF, LIC Nomura MF, HDFC MF, UTI MF and DSP BlackRock MF have got a muted response.

While the fund houses expressed confidence that they would be able to garner the minimum required limit of R10 crore for their new schemes, sources said that going has been tough. All of these NFOs close this week.

Industry observers believe that each of the fund houses would be able to get not more than 10,000 retail applications as opposed to the earlier targets that were in the range of anywhere between 35,000 and 60,000.

The total collection is not expected to be more than R25 crore for each fund house. ?We got a good response initially; then, the appetite tapered off. Many investors postponed their investment plans after the finance minister announced plans to liberalise the scheme,? said Nilesh Sathe, CEO, LIC Nomura MF. Sathe said his fund house was looking to collect about R15-20 crore under the new scheme.

Some fund houses like DSP BlackRock and HDFC MF are paying commissions as high as 6-7% to distributors, according to sources. Since fund houses can charge 2.7% as annual expense ratio, total charges that can be charged for three years amounts to 8.1%. Industry officials said that paying a commission of more than 4.5% is a bit unfair as that is the quantum of commission paid to distributors for ELSSs, which is also a tax-saving scheme with a three-year lock-in.

In a desperate bid to shore up collections, some of the fund houses have even resorted to tactics like selling RGESS as an equity scheme to non-first time investors, said sources. Since these schemes are all closed-ended, fund houses can\’t collect more money once the NFO period closes.

Also, the fund houses will have to launch new such closed-ended schemes every year to collect money under the RGESS platform.

Industry observers attribute the dismal response to the delay in finalising guidelines for the scheme.

?A lot of the salaried professionals planned for their tax savings by December. Had the scheme been launched in October or November, the response would have been much better,? said Surajit Misra, EVP and national head, mutual funds, Bajaj Capital.

Market participants pointed out that those earning R10 lakh per annum and who had availed of the R1 lakh limit under Section 80C, hardly had enough savings left to invest in RGESS.

Apart from the inherent complexity of the scheme, identifying first-time investors was the biggest hurdle in getting fresh applications.

?The entire distribution community is not quite attuned to getting applications through the depository accounts. Plus, distributors are not comfortable doing two separate KYCs and in-person verifications, which may be necessary for several first-time investors,? said Debasish Mallick, MD & CEO, IDBI MF. Market participants believe the scheme might get better response in the next fiscal, provided some of the complexities are rectified.