In 2019, the 43-player mutual funds industry launched a total of 84 new fund offers
Mutual fund houses were on a spree of launching debt and equity schemes in 2019 despite the market volatility and the credit crisis in particular that shook the mutual fund industry.
According to the data available on the Association of Mutual Funds in India’s website, in 2019, the 43-player mutual funds industry launched a total of 84 new fund offers.
Of this, interestingly, 25 schemes were from the debt category higher from in 2018 when 18 debt schemes were launched. Debt funds were impacted the most after credit events.
Fund experts feel that some fund houses may have had a gap in their portfolio and maybe looking to fill it through new scheme launches.
“Investors were taken aback from the credit events last year but these fund houses were largely launching to complete their product portfolio,” said a CEO of a mid-sized mutual fund.
In Oct 2017, SEBI broadly classified all schemes under 10 categories of equity funds, 16 categories of debt funds, and six categories of hybrid funds.
According to the guidelines, there can be only one scheme per category. Excess schemes will have to either be wound up, merged or need to undergo a change in their fundamental attributes.
Another fund manager said that, in the debt category, most fund houses were launching overnight funds that prove to be less risky, particularly after the default of IL&FS hit liquid schemes in 2018.
Overnight funds invest its assets in CBLO (collateralised borrowing and lending obligations) and repo/reverse repo instruments that mature in one day. Liquid funds invest in treasury bills, commercial paper and certificate of deposit that have a maturity up to 91 days.
Overnight funds expose investors neither to credit risk nor to duration risk but yield paltry returns of about 6.4 percent. Liquid funds do slightly better.
On the equity front, the new fund offers fell to 28 schemes from 34 NFOs launched a year ago.
To name a few, DSP Mutual Fund, IDFC Mutual Fund, Canara Robeco, Aditya Birla Sun Life Mutual Fund, Kotak Mutual Fund, Yes Mutual Fund have NFOs in 2019.
Investors became extra cautious after the IL&FS default had surfaced in September 2018. The presence of IL&FS and its subsidiaries in the portfolios of liquid funds led to a sharp fall in their NAVs.
Back then, the firm and some of its subsidiaries' credit ratings were downgraded. Defaults by many other corporate groups, including DHFL, Essel and Reliance ADAG, further soured sentiment for debt funds, prompting investors to pull out nearly Rs 1.5 lakh crore in 2018 from these funds.
Investors were caught off-guard by the overnight drop in the net asset values (NAV) of these schemes. Those who panicked and withdrew had to do so at a loss.In the IL&FS saga, some schemes lost as much as 5 percent in a single day, wiping out half a year’s worth of gains. A few schemes wrote off the IL&FS exposure completely, resulting in the NAV taking a hit to that extent. A slew of schemes faced heavy redemptions in the wake of the default.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.