Why are MF investors in love with NFOs? | Economic Times

Mutual funds investors need not feel left out. Just like the IPO frenzy in the stock market, the mutual fund industry is currently witnessing an NFO craze. Fund houses are busy launching a record number of new fund offers and many of these NFOs are breaking all records in AUM collection. According to AMFI data, from January, 2021 to September, 2021, 22 open-ended equity NFOs and 37 passive fund NFOs were launched in the Indian mutual fund industry. The newest entrant to the NFO bandwagon is NJ Mutual Fund. NJ Balanced Advantage Fund has garnered Rs 5,200 crore in the NFO period. Such a big number is surprising, especially for a new fund house. "We've received more than Rs 5,200 crore from 2.25 lac investors from more than 600 districts in 35 state and Union territories in our debut NFO of NJ Balanced Advantage Fund. This is possible only because of the foundations laid by the industry and the NJ group over the last 2 1/2 decades," Rajiv Shastri, Director & CEO at NJ Asset Management. In the last 9 months of 2021, the NFOs from equity funds, index funds and ETFs have collected around Rs 44,000 crore. These numbers do not include debt and hybrid fund NFOs. The number would be far greater if we include these two categories as well. NFOs of schemes like SBI Balanced Advantage Fund swept Rs 14,551 crore in their NFO period. Here's a look at the top grossing equity NFOs of 2021: 87325960However, the moot point is why investors are interested in these NFOs and pumping in a lot of money? More so, since financial planners and mutual fund advisors have always been wary of NFOs. They have always been against retail investors getting into NFOs. Advisors believe that retail investors going big on NFOs is a worrying issue. "Every bull run provides opportunities to businesses to come with IPO or FPO at a high premium to make the most of it. Similarly, NFO is a way to accumulate and increase assets of fund houses and so their income. In Spite of so many investor awareness initiatives, investors still don't understand the difference between IPO and NFO. Even AMFI is not trying to address it in their "Mutual fund sahi hai" campaign," says Raj Talati, founder, ABM Capital, a financial planning firm based in Vadodara.There is another theory for why so much money is chasing these NFOs. Arun Kumar, head of research at FundsIndia, believes that all the money going into the new fund offers is the same money that was pulled out of equity funds in expectation of a crash. "When the markets crashed after the Covid outbreak, it went to 27k and then later came back to the 40k levels. At those levels a lot of investors were apprehensive about keeping their money in funds expecting a crash or a huge correction because the Covid situation was never out of sight. Since then, the market has only gone up. That money which was pulled out is finding it extremely difficult to get back at current valuations. NFOs are giving many investors a psychological comfort that the size is small and opportunity is new. Some of these NFOs are balanced advantage funds which are the talk of the town. Some other NFOs are also saying that they won't deploy the money all at once but spread it out for you. All this is nothing but psychological comfort for those who missed the bull run," says Arun Kumar. Kumar adds that there are only two reasons why investors would want an NFO over an existing fund with a good track record. Either the new fund needs to be really something the market lacks or purely picked based on small size. If you look at the NFOs that have garnered huge inflows, these are all regular equity schemes. Raj Talati believes that so much interest in NFOs is mostly FOMO. In a bull market, investors need to take an informed decision based on their key fundamentals and not just go with the crowd. "Most of the AMC's are filling their fund basket by bringing NFO's as per SEBI categorisation, whereas there are few who are really trying to tap the markets with newer concepts to optimise investors returns by minimising risk. Investors need to be careful while selecting this NFO, they need to ensure that they are investing in the fund only because they need it and not because AMC's are launching it," says Raj Talati.