The appetite for equity new fund offers (NFOs) has been steadily declining in the past two years as an uncertain equity market has prompted fund houses to defer new launches.
In FY13, just 20 equity NFOs were launched, the lowest in the past seven fiscals for which data was analysed. The combined launches in FY12 and FY13 totalled 44, the same number as that in FY11, data collated from Value Research, a mutual fund tracker show. What?s worse, fund mobilisation dipped 88% to R111 crore in FY13 from R930 crore in FY12. For a past few years, Sebi has been discouraging new fund offers urging fund houses to merge schemes. ?Sebi is asking a lot of questions. It wants to be sure there is no similarity between the new and existing schemes and that the trustees have taken adequate measures before approving the new scheme,? said a mutual fund CEO on condition of anonymity.
?There are about 400-plus open-ended equity schemes available to the investing public, which pretty much covers every investment theme or objective that has to be covered. So, the need for new fund launches at present is minimal,? said Sunil Subramaniam, director, sales & global operations, Sundaram MF. He said instead of spending money on new offers, AMCs could focus on improving performance of existing schemes, which is what the regulator wants. ?At a time when existing equity schemes are seeing sustained outflows, fund houses don?t have enough confidence that they will be able to collect the minimum amount of R10 crore required for an equity NFO.?
Indices gained over 8% in FY13, but the gains seem to have done little to restore the confidence of equity MF investors, with equity schemes seeing outflows of R12,931 crore.
Some industry participants are blaming the market regulator for undue delays. ?NFOs should ideally be cleared within a month?s time, but Sebi has been taking 6-7 months on an average to clear new schemes. A few schemes have even taken more than a year to get cleared,? said a senior fund official.
?The equity market is dynamic and delayed approvals can defeat the very purpose of bringing in a new scheme.? An email sent to Sebi with regard to the delays went unanswered at the time of going to press. Interestingly, there was a strong buzz in the industry a few months ago that approvals for NFOs were being inordinately delayed after a new and relatively inexperienced team at Sebi was handed the responsibility of clearing NFOs. ?Things are better now. The new team finally seems to be settling down,? said a source.
It was a common practice among fund houses, especially between 2006 and early 2008 to launch me-too schemes that were very similar in their objective or theme to existing schemes. For instance, as many as 98 new equity offers mobilised in excess of R44,000 crore in FY08, a year when Indian equities were scaling new highs.