The equity market is showing no signs of cooling down, and mutual funds are looking to capitalise on the good times while it lasts.

Where retail investors are concerned, conventional stock market wisdom suggests that equities are best avoided when there is too much euphoria. And market experts are never tired of pointing out that mutual funds should be viewed as long-term investment vehicles, and not like an ATM card to make a quick buck in a booming market, reports - The Economic Times. 

“It may seem a bit strange, but we are able to garner the maximum funds only in a rising market, and even if it may seem that the market is close to peaking out,” admits a fund manager. Understandably, asset management companies are busy announcing new fund offerings, and chances are that they will get a strong response.  (View - New Fund Offers open NOW)

Followers of contrarion indicators say that the launch of too many mutual fund schemes usually presages a correction in the stock market. Industry officials agree that a booming market is always the best time to raise funds as most investors want to make some quick money after having heard many stories of their friends and relatives making a killing in the stock market.

“Distributors tell us that they find it easy to convince investors to put money in an NFO, when the market is positive. This is when funds can raise the maximum sticky money (money from retail investors),” said a sales officer from a private fund. He added it does not mean that investors will lose money in this bargain, as funds will sit on cash for the time being before shares fall to more attractive levels.

This month, close to 10 equity schemes have been launched. Some of these include Reliance MF’s equity advantage and JM MF’s contra fund. Emkay Shares and StockBrokers’ head of wealth management, Akhilesh Singh said: “The rush of NFOs is really due to the strong appetite for these products among Indian investors. Earlier there used to be a single NFO in a week — now there are three NFOs a week and yet every one of them meet their target (of funds to be raised).” He, however, feels that fund houses should offer more innovative products to investors like structured products and alternate investments.

DSP Merrill Lynch AMC’s president and chief investment officer, S Naganath said, “With markets at their peaks, there is a demand for products that offer a bit of diversification in the investor. Distributors are giving us feedback that specific themes other than equity and fixed income schemes should attract investors.”

India has over 300 equity schemes that have close to $40 billion in assets. This ratio of the assets per scheme is one of the highest in the world. This really makes one wonder whether any new fund launches are required. However, what is really happening — as ET has reported before — every time a new scheme is launched, a section of investors are dumping some of their holdings in older schemes and reinvesting the money in the new NFO.

What is often forgotten is the fact that their decisions are mostly influenced by MF distributors, who eye products with higher commissions.

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