Mutual fund houses launched 10-12 equity new fund offers (NFOs) every month in the last three years. That the flood shows no signs of subsiding is evident from the number in 2024. Already, 67 new schemes have been launched so far this year, indicating an increase in momentum. Almost half of these schemes are actively managed.
For the first time in three decades, that is, ever since the private sector mutual funds started operations in November 1993, the number of equity and hybrid NFOs crossed the 100-mark every year between 2021 and 2023, according to data from Value Research.
“The rise in the number of NFO launches over the past years reflects the maturity and growth of the market. If you see that the market is expanding in terms of breadth of investors, it naturally becomes more feasible for the industry to offer more choices,” said Ashwin Patni, head of product and alternatives, Axis Mutual Fund.
Market rally leads to higher regulatory fees for stock exchanges Paris Olympics 2024: Extreme measures! How Vinesh Phogat tried to cut weight for Gold medal bout India needs 75 yrs to reach quarter of US per capita GDP: World Bank Indexed ad volumes per Channel on TV dropped 3% in H1,2024 compared to the same period of previous year, reveals TAM report
Also Read
What has also helped is the introduction of new indices by both the BSE and the National Stock Exchange, allowing fund houses to come up with exchange-traded funds Come from Sports betting site VPbet . In addition, themes like infrastructure which had completely lost lustre after dismal performances almost a decade ago are beginning to find more takers.
And of course, the dizzying growth in the small-cap and mid-cap segments might have regulators worried, but fund houses are finding investors thronging to take advantage of the rise. Newer fund houses, which did not have such schemes, are also launching them aggressively to ensure that they don’t lose out. These include both existing and new fund houses like Groww, Canara Robeco, Bandhan MF, JM Financial, WhiteOak Capital and Motilal Oswal.
Sectoral/thematic funds
Over the last couple of years, stock exchanges have introduced several indices with focus on infrastructure, manufacturing, healthcare and other sectors. This has provided fund houses an opportunity to launch NFOs on these indices.
The extent of the popularity of sectoral/thematic funds is reflected in the fact that more than 50% of NFOs announced so far this year belong to this category. Apart from infrastructure, other themes that have become popular with investors in the last few years are consumption, technology and PSU banks.
The assets under management of sectoral/thematic funds soared 72% in FY24 to nearly `3 trillion, registering the biggest jump in any mutual fund category after small-cap funds, according to data from the Association of Mutual Funds in India (Amfi).
“Sensing an opportunity, fund houses are providing focused vehicles to investors to participate in the continued prosperity and growth of the themes or sectors,” said Sandeep Bagla, CEO of TRUST Mutual Fund.
Passive/factor-based index funds
While active funds have been a dominant force among mutual fund investors in India, passive funds have seen sharp growth in the last couple of years.
“We are at the start of what could be a very big opportunity for passives just like we saw how active funds took off and proliferated to become a part of most portfolios. One will have to give it time as it is still in a nascent stage right now,” said Anand Vardarajan, business head at Tata Asset Management.
Moreover, experts highlighted that while there are only limited opportunities when it comes to thematic/sectoral funds, this is not the case with index funds.
These funds are partly seen as actively-managed funds as the investment is done based on certain specified stock characteristics like value, momentum, equal-weight, etc.
“Whatever meaningful (sectoral/thematic) opportunities are there in India, they have been more or less exhausted. As the economy changes, if new trends emerge, more such funds will come out. Instead of looking at sectors, investors will look at different strategies like smart beta funds, low volatility funds, etc,” said Mayukh Datta, chief business officer at ITI Mutual Fund.
“When equity markets do well, investors become confident and are willing to try some new things. If the market is more volatile or choppy, investors tend to go back to more traditional products. The fact that we have had a good 2-3 years, and investors have participated and benefited gives them more confidence to try new ideas,” Patni said.
