Mutual funds' collection through NFO drops 38% to Rs 62,000 crore in 2022

Mutual funds' collection through new fund offerings (NFOs) remained subdued in 2022, with asset management companies (AMCs) garnering over Rs 62,000 crore through new schemes, which was 38 per cent less compared to 2021.

However, higher number of NFOs were launched in 2022 compared to the preceding year. A total of 228 new schemes were floated last year, which was way higher than 140 launched in 2021, according to the data compiled by Morningstar India.

In the year 2022, fund managers focused on passive funds and fixed income categories like fixed maturity plans. In fact, number of fixed income NFOs seem to have doubled in 2022 over the previous year.

According to the data, a total of 179 open-end funds and 49 closed-end funds were launched in the calendar year 2022, and cumulatively, these funds garnered Rs 62,187 crore.

In comparison, 140 NFOs were floated in 2021 and cumulatively, these funds were able to mobilise Rs 99,704 crore and 81 new schemes were launched in 2020 raking in Rs 53,703 crore.

"The year 2022 was relatively dull with low single-digit returns on a couple of key market-cap based indices while some even trod into the negative territory. A combination of inflation-interest rate dynamics, geopolitical upheavals and consequent economic ramifications dented investor sentiments," Nirav Karkera, Head of Research at Fisdom, said.

In addition, fewer NFOs were launched in core categories of flexicap, multicap and dynamic asset allocation that also affected investment commitments, he added.

Usually, NFOs come during a surging market when investor sentiment is high and optimistic.

The stock market performance along with the positive investor sentiments led to higher fund mobilisation through NFOs in 2021.

The higher fund mobilisation in 2021 versus 2022 can be attributed to a couple of key factors. The primary reason was conducive broader capital market conditions with a steep bullish streak through most of 2021 coupled with euphoric investor sentiments. Moreover, key market-cap indices ended the calendar with relatively high double-digit returns, Karkera said.

The NFOs were floated to capitalise on the mood of investors and attract their investment as they were willing to invest at that time.

Coincidentally, over the same period, Indian capital markets regulator Sebi along with Association of Mutual Funds of India (AMFI) brought in considerable investor-friendly changes which included exit-load removal, entry-load capping, categorisation and reorganisation of mutual fund schemes, direct plans, risk-o-meter, addition of new category, flexicap, and other policies, thus ensuing investor awareness and bringing about clarity and transparency in investments.

The year 2021 was characterised by big-bang NFOs by large AMCs in popular core categories such as flexicap, multicap and dynamic asset allocation.

In 2022, AMCs were focused on floating NFOs in other schemes category, especially index funds, and debt-oriented schemes segment, mainly fixed-term plans.

The maximum number of funds (84) were launched in the index fund segment, which amassed Rs 11,235 crore, followed by fixed-term plans (49), which mobilised Rs 12,467 crore, and other ETFs (39), which collected Rs 3,405 crore.

Further, in the equity category, 27 NFOs were launched, while five new fund offerings were floated in the hybrid category.

Experts believe that the dominance of index funds and ETFs (exchange-traded funds) within NFOs is not surprising, owing to a couple of factors.

According to them, existing AMCs have no restrictions in the number of passive products they can manufacture, whereas there are limits on other types of funds.