Even as the recent new fund offerings (NFOs) are receiving good response, equity mutual funds, which have gone out of favour of retail investors after the May-June meltdown, will take some more time to turn the tide and regain their popularity.
The market is eagerly awaiting the launch of exchange traded funds (ETFs) in gold and real estate mutual funds as a trigger for the next level of explosion in assets under the management (AUM) of mutual funds. Though regulatory guidelines were already issued for these new products, regulatory approvals are awaited.
Birla Sun Life Mutual has collected Rs 410 crore from its five-year equity fund last month, while UTI and DSP Merrill Lynch Mutual have collected over Rs 900 crore and Rs 1,000 crore respectively from their just concluded equity NFOs. However, these are no comparison to net inflows during the January-April quarter.
“NFOs cannot be a good indicator for trend reversal. We have to see a tangible growth in total inflows into the funds to identify the same,” said, Nilesh Shah, Chief Investment Officer, Prudential ICICI Mutual Fund.
With interest rates on the upward move since June 2006, debt mutual funds have started picking up while retail interest in equity funds has been petering out for the last four months.
Stating that the equity funds will take some more time to regain their importance, Shah added, “Retail investors, who withdrew money from equity funds during the recent festive season, are yet to replenish their mutual fund portfolios.”
Out of the Rs 18,600 crore rise in the AUM of the mutual fund industry in October 2006, over Rs 10,000 crore would have come from the debt funds, even after taking the possible capital gains in their equity assets due to market spiral into account, according to the conservative industry estimates. The disaggregated data of AUM for the last month is yet to be released.
Concurring with the view expressed by Shah, N Sethuram, CIO of SBI Mutual Fund, said liquid and fixed maturity plans (FMPs or short-term debt funds) were the flavour of the season for the last four months. ‘Equity mutual funds are going through a steady phase now,” he added, while denying redemption pressures on equity schemes.
However, the recent successes seen in new fund offerings (NFOs) are rekindling hopes about the revival of equity funds. “We have seen a good response to some of the NFOs recently, including one of our own. With market continuing its upward trend and good response to the latest IPOs like that of Naukri.com, we are expecting emergence of fresh investor appetite,” said A Balasubramanian, CIO of Birla Sun Life Mutual.
Based on these latest expectations on equity funds, JM Financial Mutul Fund has launched two new schemes dedicated to financial services and telecom sectors. Denying that equity funds have lost their attractiveness, the fund CEO Jimmy Patel argued that debt always commanded a major share of the industry AUM.