Equity new fund offers (NFOs) launched in FY12 are the lowest in the last ten years as volatile equities and stringent regulatory requirements dissuaded fund houses from launching schemes.

The number of NFOs being launched have seen a steady decline every fiscal since FY09, the year the global financial storm hit equity markets across the globe. With just 16 equity NFOs launched in FY12, NFO mobilisation slumped 58% to R914 crore in FY12 from R2,191 crore in the preceding fiscal. NFO mobilisation in FY12 is down a whopping 98% from the peak of R46,171 crore garnered by way of 89 NFOs in FY08.

According to market participants, most of the NFOs launched in the past year have been from the newer fund houses that are in an expansion mode. ?The industry is gradually moving away from focusing on new fund sales to working on improving the positioning of existing funds,? said Naval Bir Kumar, president & CEO, IDFC Asset Management. ?The regulator is now much more insistent on ensuring that the new funds launched by a fund house are significantly differentiated form its existing offerings.

Given the fact that a lot of the bigger fund houses already have a large number of equity schemes in their portfolio, getting approval for new funds has become that much more difficult.?

The volatile equity market in FY12 has impacted investor sentiments. Equity funds saw outflows of R455 crore in April, the fourth consecutive month of outflows, latest data from mutual fund industry body Amfi shows. This compares with R196 crore of outflows in March, R2,680 in February and R456 crore in January. The benchmark BSE Sensex retreated 10.5% in FY12.

Market watchers believe that the entry load ban effected in August 2009 has also hurt the launch of new schemes. ?To a great extent, the ban helped reduce portfolio churning from existing schemes into new fund offers and vice versa,? said Dhruva Chatterjee, senior research analyst, Morningstar India.

He added that this has indirectly benefited investors as their money can now go into funds with a proven track record. Equity schemes have seen inflows in only twelve months since August 2009.

Other regulatory changes such as the initiative to scrap the regulation that allowed MFs launching closed-ended funds to amortise the initial issue expenses in 2008 also led the decline in new fund launches, said market participants.