Why Mutual Fund NFO collections fell by 42% in FY23

Mutual Fund NFO fell by 42% in FY23
Mutual Fund NFO fell by 42% in FY23

by 5paisa Research Team Last Updated: Apr 19, 2023 - 06:26 pm 1.1k Views
Listen icon

New fund offerings were relatively dull in the financial year FY23 as compared to the previous year. Now, new fund offerings or NFOs are important for two reasons. They offer an opportunity for fund houses to onboard new mutual fund customers. Secondly, it gives the fund house an opportunity to offer a new product to the customer and a new investment story. The success is not only a function of a good product, but also the right market conditions, the right pitch, the right marketing strategy and the bancassurance network that is leveraged by the fund house. That brings us to the moot question; why did NFOs in FY23 fall sharply below the FY22 levels. But first a look at the NFO story for FY22.

NFO story for FY22 – The Year before last

Months of
FY22

Thematic Funds

Flexi/Multi Cap Funds

Index Funds

Other ETFs and FOF

Close End FTPs

Dynamic Funds (BAF)

Income Funds

Total (Rs crore)

Apr-21

35

-

52

30

94

-

329

540

May-21

1,203

1,922

227

2,148

-

-

410

5,910

Jun-21

193

-

165

-

732

-

-

1,090

Jul-21

3,901

9,808

-

1,737

241

-

1,645

17,332

Aug-21

3,384

3,479

405

336

899

14,551

614

23,668

Sep-21

3,069

3,510

1,096

115

493

-

-

8,283

Oct-21

-

-

1,047

1,220

251

5,216

-

7,734

Nov-21

478

-

328

60

797

1,042

-

2,705

Dec-21

2,937

9,509

161

6,510

450

474

575

20,616

Jan-22

-

-

2,490

228

227

-

285

3,230

Feb-22

640

1,276

1,062

332

203

-

-

3,513

Mar-22

 

8,170

3,596

121

1,364

 

24

13,275

Category Total

15,840

37,674

10,629

12,837

5,751

21,283

3,882

1,07,896

Data Source: AMFI

What are the key takeaways from the NFO flows in the year before last i.e., FY22.

  • There were 2 months when the monthly collections via NFOs were more than Rs20,000 crore and 4 months when the monthly collections were more than Rs10,000 crore. The total yearly NFO flows for FY22 stood at Rs107,986 crore.
     

  • The category that attracted the maximum NFO flows was the flexi-cap and multi-cap category. The new category established resulted in a number of funds rushing to fill the gap with NFOs. Also, the flexi cap and multi cap category were welcome for the alpha seekers. Not surprisingly, flexi caps / multi-caps saw NFO flows of Rs37,674 crore.
     

  • Dynamic funds or balanced advantage funds (BAFs) were a big hit in FY22, largely driven by the record collections in the SBI BAF NFO, that almost collected 70% of all BAF NFO flows in FY22.
     

  • Thematic fund continued to get solid inflows as is evident from the small cap, mid-cap and sectoral plays that attracted NFO flows of Rs15,840 crore. Investors were willing to venture into NFOs where there was specific alpha visible for them.
     

  • The lure of passive funds was also quite strong in NFO action in FY22. Passive funds comprising of index funds and index ETFs also attracted Rs23,466 crore of NFO flows in FY22.

Overall, FY22 was a robust year for the NFO flows into mutual funds led by specific categories like multi-caps, flexi-caps, BAFs, alpha seeking funds and passives.

NFO story for FY23 – Why it was 42% lower?

Mutual fund collections via new fund offerings (NFOs) for the financial year FY23 stood at Rs62,342 crore. That is 42.2% lower than the NFO collections of Rs107,896 in FY22. To an extent, the NFO flows in FY23 were impacted by factors like volatile markets, tepid FPI flows and global headwinds. The table captures the break-up of mutual fund NFOs in FY23.

Financial Year
2022-23

Thematic Funds

Flexi/Multi Cap Funds

Index Funds

Other ETFs and FOF

Close End FTPs

Dynamic Funds (BAF)

Income Funds

Total (Rs crore)

Apr-22

3,130

 

91

19

 

 

 

3,240

May-22

-

-

-

-

-

 

-

-

Jun-22

-

-

-

-

-

 

-

-

Jul-22

 

 

5

11

1,430

 

 

1,446

Aug-22

1,100

1,962

203

79

2,293

746

1,602

7,985

Sep-22

4,156

1,680

487

130

1,117

745

59

8,374

Oct-22

2,624

426

1,750

11

598

 

30

5,439

Nov-22

2,426

 

980

90

3,703

 

 

7,199

Dec-22

1,586

410

571

2,798

1,532

 

1,589

8,486

Jan-23

 

1,204

420

27

851

1,572

348

4,422

Feb-23

2,540

2,508

863

30

954

292

-

7,187

Mar-23

3,841

 

634

181

3,878

 

30

8,564

Category Total

21,403

8,190

6,004

3,376

16,356

3,355

3,658

62,342

Data Source: AMFI

Here are some of the key takeaways from the NFO flows in FY23 and why they were sharply lower than FY22. After all, unlike in FY22, the fiscal year FY23 did not have even a single month with more than Rs10,000 crore of collections.

  • Thematic equity funds were the one category where FY23 had a better run than FY22. This was largely due to the surge of interest in mid-cap, small cap and sectoral stories during the fiscal year in search of alpha. Also, many of these sectoral and thematic funds do not have any restrictions from SEBI on the number of schemes from an AMC.
     

  • While multi-cap and flexi-cap were nowhere close to the euphoria of FY22, passive fund did see some buying interest. During FY23, index funds (equity and debt) mobilized Rs6,004 crore while ETFs and FOFs (fund of funds) also mobilized Rs3,376 crore. The trend appears to be that where there was search for alpha, investors were preferring NFOs of mid-cap, small cap, or sectoral themes. For more diversified plays, there was a preference for lower cost passive funds.
     

  • An interesting sidelight of FY23 was the strong collections by closed ended fixed term plans to the tune of Rs16,356 crore via NFOs in FY23. Apart from locking into higher yields, there was also a capital gains tax angle. Under the new Finance Bill, long term capital gains tax benefits were being withdrawn for pure or near-pure debt funds. The month March saw the last hurrah for these funds to make the best of the tax benefits.
     

  • Finally, there was the 2-month NFO freeze imposed by SEBI during the months of May 2022 and June 2022. This was to ensure full compliance with its latest rule that funds should be directly transferred from clients to AMCs and not through brokers or advisors. The idea was to prevent misuse of funds. This delay in compliance forced a 2-month freeze on NFOs in FY23.

Overall, FY23 NFO mobilizations were 42% lower compared to FY22. While the reduced attractiveness of BAFs and flexi-caps played a role, the SEBI freeze also led to tapering of NFO flows in FY23.

Share Market Today


How do you rate this article?

Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage

378X91-D3

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.

Disclaimer

Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.India consu
Enjoy 0%* Brokerage with 5paisa
Resend OTP
Please Enter OTP
Mobile No. belongs to

By proceeding, you agree to the T&C.

Latest News
52-Week High Stocks: Bharti Airtel, Mahindra & Mahindra, and More; Do You Own Any?

Bharti Airtel has been in the spotlight after announcing a definitive agreement with Axiata Group's Dialog to merge its operations in Sri Lanka.  This has led to Airtel’s stock to surge to a fresh 52-week high, reaching a price of ₹1280.0.

Dynacons Systems & Solutions Share Price Soars 83% in 15 Sessions, Surges 340% in a Year

Dynacons Systems & Solutions, an Indian-based IT company, experienced a substantial surge in its share value with shares rising 83.50% in 15 trading sessions and 340% in one year, driven by heightened investor sentiment follow

8 FPIs Settle Alleged Adani Stock Violations with SEBI

More than half a dozen foreign portfolio investors (FPIs) that owned substantial stakes in Adani Group firms are looking to settle securities violation matters with markets regulator SEBI, said people familiar with the matter.