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No Thanks to NFOs

The stock markets are suffering, and the effect has rubbed off on NFOs too, as they find no takers

Investors see New Fund Offers (NFO) as a cheap and easy way of getting a fund at a mere Rs. 10. NFOs are often wrongly taken in the same vein as IPOs. Their modus operandi is the same after all: new investment flavours, big hoardings, sharp presentation, tempting TV commercials and the works. Luring investors and evoking a response from them was relatively easy, but that was till the going was good.

In the last quarter of 2007, when the Indian stock markets were at their peak, 20 new equity funds raised a whooping Rs. 16,200 crore. 10 of these 20 were close-ended funds that accounted for 68 per cent (Rs. 9,397 crore) of the total collection. This was also the highest collection in the past six months. UTI Infrastructure Advantage, Sundaram BNP Paribas Energy Opportunities and Tata Indo Global Infrastructure Fund were the funds which grabbed the lion's share, successfully crossing the Rs 1000 crore mark.

However, when the markets crashed in January, 2008, the new funds launched during that time bore the brunt, which was evident from their dismal collections. All but one new fund received lukewarm response from investors. The Reliance Natural Resources Fund collected Rs. 5,660 crore, which by itself accounted for 90 per cent of January's total collection.

This created an illusion that new funds are still going strong, but the illusion was broken by the cold shoulders given to Morgan Stanley's A.C.E. Fund, Mirae Asset's India Opportunities Fund and HSBC's Emerging Markets Fund. The message was loud and clear: new funds are not as hot as they are in the bullish markets.

The collections further slipped in the months of February and March. In March, 11 new funds were launched, but only eight of them have disclosed the exact collection figures. The other three funds are probably too embarrassed to disclose their dismal collections.

Looks like after a flood, the market is now witnessing a drought as far as 'new funds' are concerned, as not a single new fund offer has been closed in the month so far. But this is only a temporary self imposed exile by the fund houses, as they would be rolling out new products in the market very soon, and that too with a renewed confidence. The new funds currently available in the market include ICICI Prudential Focused Equity Fund, AIG World Gold Fund, Sundaram BNP Paribas Financial Services Opportunities and Sundaram BNP Paribas Entertainment Opportunities Fund, all of which are open end funds. That's not all, there are many more in the pipeline.

With the market regulator SEBI scrapping off the amortization expenses on closed end funds, the launch of more open end funds in the future, is quite expected.