NFO trends in recent years

Has your bank's relationship manager ever urged you to invest in the latest new fund offer (NFO), calling it a 'must-have' for your portfolio? It's no surprise that fund houses backed by banks have dominated NFO collections. ICICI Prudential AMC tops the list, raising nearly Rs 39,000 crore across 53 funds since FY2019. Among these, their flexi-cap fund has been particularly popular. Since the mutual fund industry was re-categorised in FY2018, we've witnessed a surge in sectoral, thematic and passive funds. That's because, since the re-categorisation, fund houses are allowed to launch only one active fund per equity category but unlimited funds in the 'other schemes' and sectoral/thematic category. NFO over the years Over the past two decades, India's mutual fund landscape has mirrored the market sentiment. NFOs have acted as a barometer for investor confidence, with their popularity fluctuating dramatically. During the bullish years of 2004-06, NFOs grabbed over 100 per cent of equity net flows, riding the wave of market optimism (indicating that a large chunk of the investors sold their holdings to subscribe to NFOs). However, the 2008-09 market crash triggered wide-scale pessimism, causing NFO activity to nosedive. Today, NFOs have found their mojo again. Since we are on another bull run, net flows to equity funds have skyrocketed. The real standout was FY2022, when NFO mobilisation surged to an all-time high of Rs 64,758 crore, making up 21 per cent of net flows, thanks to the post-pandemic recovery. Fast forward to the current financial year, as of September 30, 2024, we've already hit 28 per cent of net flows, another sign of rising investor participation. That said, it's worth noting that the current enthusiasm for NFOs pales in comparison to the fervour observed during the sunny days of FY2004-06. NFOs in post-pandemic boom Analysing the current flow of investments reveals a few distinct trends. NFOs of flexi-cap funds, including focused funds, reached their zenith in FY 2022, collecting over Rs 18,000 crore of investor money. However, this category has experienced a marked decrease since then, as most of the fund houses have already launched their active variants. Multi-cap NFOs, meanwhile, have continued to garner substantial inflows since their introduction in 2021. Thematic funds have been a monster hit, too. For instance, SBI Energy Opportunities and HDFC Manufacturing Fund collectively raised around Rs 16,000 crore during their NFO periods, which is more than the combined net assets of eight mutual fund houses as of September 2024 portfolio. This highlights the growing appeal of niche investment themes in the market. The money game Mapping NFO category inflows since FY2019, thematic funds emerge as clear favourites (in cr) Categories 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24 2024-25^ Large, Mid and Small Cap 1,210 2,331 2,514 4,037 3,148 5,469 1,877 ELSS 16 24 - - 73 118 - Flexi Cap 2,148 3,752 1,878 18,047 4,991 2,689 2,389 Large & MidCap 1,303 719 521 53