New fund offers (NFOs) from equity-linked mutual funds have raised close to Rs 6500 crore over the last 100 days. In comparison, actively managed equity mutual funds saw outflows of Rs 7214 crore in the past three months.
Among the successful NFOs, ICICI Prudential ESG fund, a theme which is gaining prominence overseas and catching investor fancy, raised Rs 1415 crore. Axis Global Equity Alpha Fund of Fund, which will invest in an international scheme that bets on a basket of global companies, raised Rs 1181 crore. Nippon India Multi Asset Fund, which will invest in a mix of debt, equity, gold and international funds, raised Rs 720 crore. Sundaram Bluechip raised Rs 650 crore while Invesco India Focused 20 Equity Fund garnered Rs 602 crore.
“Investors who are sitting on cash, waiting for a correction to invest in equity are being sold NFOs with stories being woven around them,” says Munish Randev, Founder & CEO, Cervin Family Office.
The Nifty has gained almost 59% in over six months in an almost uninterrupted rally. Panicky investors who felt the market has rallied too fast, too soon, have been booking profits. Wealth advisors said the redemptions are also because returns on majority of the equity schemes have been disappointing in the range of 4-6% in the past five years.
“There has been poor performance from actively managed equity mutual funds. Less than 20% of funds have outperformed either their benchmarks or category average” said Rajesh Cheruvu, Chief Investment Officer, Validus Wealth.
In addition to the performances, uncertainty over the recent tightening of investment rules in multi-cap funds also led to some outflows from these schemes. Some of this money made their way into NFOs.
Some investors like the idea of investing in a new product with Net Asset Value (NAV) of Rs10, which is perceived to be cheaper than the NAV of an older product.
“There is still attraction among a set of investors to go for a Rs 10 NAV product, which brings money to NFOs,” said Cheruvu
Distributors too are pushing NFOs aggressively because of higher commissions. For example, a scheme which has assets of more than Rs 10,000 crore can have 1.5% as expense ratio—the charges that mutual funds collect from unitholders annually. A scheme with Rs 500 crore AUM can pay 2.25% as expense, which means a distributor can earn higher commission in a new fund offer as it has low assets.
“High decibel marketing through digital modes made more effective on account of more screen time in pandemic, distributor driven switching to improve brokerage on existing assets are some reasons for investors to add money through NFOs,” said Vineet Nanda, Founder, Sift Capital, a wealth advisor. “Investors have booked profits in equity funds, restructured their non performing funds as they reach par value and are redeploying the funds at a slower pace through Systematic transfer plans (STPs),hence one has seen outflows from equity mutual funds.”