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Mutual funds’ mop-up through new fund offers in the financial year ended March has dipped 43 per cent to ₹62,274 crore against ₹ 1.08 lakh crore logged in the same period last year, largely due to the unprecedented three-month ban on NFO imposed by the market regulator in the June quarter of last year.
This apart, volatile capital depressed equity NFOs and fund raise dropped 47 per cent to ₹29,593 crore against ₹55,783 crore in March 2022.
Similarly, hybrid NFOs raised only ₹4,600 crore last fiscal against ₹21,860 crore logged the previous year, down 79 per cent as the flattish market last year eroded investor interest in the most popular arbitrage funds.
NFO on debt funds jumped to ₹18,710 crore (₹10,114 crore) due to the launch of a series of target maturity funds. However, the government’s decision to remove long-term capital gain tax on debt funds has taken the sheen off target maturity funds.
Superior returns
Nevertheless, the industry is hopeful investors would prefer debt mutual funds over bank deposits due to the liquidity and superior returns.
Rajnish Girdhar, CEO, Karma Capital, said the drop in NFOs is both a cause and effect of the weak market performance of the equity market, including recently launched NFOs.
NFOs may not bounce back strongly as long as there is no buoyancy in markets and the performance does not pick up, he added.
Last month, Axis Mutual Fund and Birla Mutual Fund has to recall their NFOs as they were not able to garner the minimum subscription due to unfavourable market conditions.
Investor confidence
The valuation of equity market was high during much of last fiscal despite concerns over corporate earnings. The steady flow into equity mutual funds was one of the factors driving market valuation.
Kavitha Krishnan, Senior Analyst, Morningstar India, said that despite the fall in mid- and small-cap indices last fiscal, domestic investors continued to place confidence in the mutual fund industry as India’s growth story remained a strong pull factor.
More than 45 per cent of retail investors have largely remained invested in equity assets for over 24 months and equity markets have witnessed net inflows for 25 months in a row, despite the market volatility, she said.
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