In 2022, Mutual Funds NFO Collection Plummets by 38% to Rs 62,000 Crore

The mutual funds‘ industry saw a 38% decline in the collection through new fund offerings (NFOs) in 2022, as compared to the previous year, with asset management companies (AMCs) garnering over Rs 62,000 crore through new schemes.

This decline in fund mobilization came despite the fact that a significantly higher number of NFOs were launched in 2022, as compared to the preceding year. A total of 228 new schemes were floated last year, while only 140 were launched in 2021.

According to data compiled by Morningstar India, fund managers in 2022 focused on passive funds and fixed-income categories, such as fixed maturity plans. In fact, the number of fixed-income NFOs doubled in 2022, as compared to the previous year. A total of 179 open-end funds and 49 closed-end funds were launched in the calendar year 2022, which collectively garnered Rs 62,187 crore.

The lower fund mobilization in 2022 as compared to 2021 can be attributed to several factors. The year 2022 saw a relatively dull stock market performance, with low single-digit returns on several key market-cap-based indices, while some even slipped into negative territory. A combination of inflation-interest rate dynamics, geopolitical upheavals, and consequent economic ramifications dented investor sentiment, according to Nirav Karkera, Head of Research at Fisdom. In addition, fewer NFOs were launched in core categories, such as Flexicar, multi-cap, and dynamic asset allocation, which also affected investment commitments.

Typically, NFOs are launched during a surging market, when investor sentiment is high and optimistic. In 2021, the positive stock market performance, along with optimistic investor sentiment, led to higher fund mobilization through NFOs. The higher fund mobilization in 2021, as compared to 2022, can be attributed to the conducive broader capital market conditions with a steep bullish streak throughout most of 2021, coupled with euphoric investor sentiments. Moreover, key market-cap indices ended the calendar with relatively high double-digit returns, according to Karkera.

Coincidentally, over the same period, the Indian capital markets regulator, the Securities and Exchange Board of India (SEBI), along with the Association of Mutual Funds in India (AMFI), brought in considerable investor-friendly changes. These changes included exit-load removal, entry-load capping, categorization, and reorganization of mutual fund schemes, direct plans, risk-o-meter, the addition of a new category (Flexicap), and other policies. These changes led to investor awareness and brought about clarity and transparency in investments.

The year 2021 was characterized by big-bang NFOs by large AMCs in popular core categories, such as flexi-cap, multi-cap, and dynamic asset allocation. In 2022, AMCs focused on floating NFOs in other scheme categories, especially index funds, and debt-oriented schemes segments, mainly fixed-term plans.

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The maximum number of funds (84) was launched in the index fund segment, which amassed Rs 11,235 crore, followed by fixed-term plans (49), which mobilized Rs 12,467 crore, and other ETFs (39), which collected Rs 3,405 crore. 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 exchange-traded funds (ETFs) within NFOs is not surprising, owing to several factors. According to them, existing AMCs have no restrictions on the number of passive products they can manufacture, whereas there are limits on other types of funds. Overall, the decline in fund

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