Seven new fund offers (NFOs) in the month of July contributed significantly towards the over 1800% rise in the thematic and sectoral categories. Three of the seven funds launched in the month were factor funds.

Some experts expect them to rally after most of the factors have seen underperformance in the recent past but they cautioned that timing of entry and exit in these funds is very important.

Record NFO collections in July

In July, NFOs garnered a record high amount of Rs 30,416 crore and thematic and sectoral category contributed Rs 7,404 crore to it. This amount is 78.5% of the total Rs  9,426.03 crore inflow in the category, up 1800% from last month.

The funds that were launched are Axis Services Opportunities Fund, Bandhan Multi-Factor Fund, HDFC Innovation Fund, ICICI Prudential Active Momentum Fund, Mahindra Manulife Banking & Financial Services Fund, Nippon India MNC Fund, and Sundaram Multi-Factor Fund.

Experts caution on factor performance

According to Rohit Beri, founder of quantitative investment fund ArthAlpha said that the most underperforming factor of all has been momentum while the best factor in the last six-seven months is low-volatility and value but all of them have underperformed the index. “Factors, standalone, have not worked out well in the past six odd months,” he said. 

“Investing in a single factor is better off through an ETF as very few single factor fund have outperformed their relative ETFs,” he said.

At the launch of DSP Nifty500 Flexicap Quality 30 Index Fund, its MD and CEO Kalpen Parekh had said that in the last five years, one factor that has seen massive underperformance that is quality, on a rolling 3 and 5 year basis, is at its lowest return compared to the index and has delivered negative return for the first time. “It is important to be counter cyclical in the market,” he said.