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NJ India Mutual Fund's debut NFO receives Rs 5,200 crore: Here’s what investors should know

Rising equity markets and a strong in-house distribution arm have helped the new fund house collect a record amount

October 26, 2021 / 10:56 AM IST

NJ India mutual fund, the latest entrant to the industry, has made a sensational debut. Its first scheme – NJ Balanced Advantage Fund (NBAF) – has received more than Rs 5,200 crore of inflows. This is the highest collection for a maiden scheme launched by any fund house.

The large collection for its first NFO (new fund offer) has highlighted the importance of having an in-house distribution firm. NBAF was sold by more than 8,000 distributors, all part of NJ India Invest – the MF’s parent company and India’s largest mutual fund distributor by income. A tiny portion of inflows (around 4.5 percent) was collected by distributors (around 140) who aren’t associated with NJ India Invest.

Previous instances of stunning debuts

PineBridge’s  maiden NFO was launched in the middle of a bull run (May 2007) and held the record for most inflows (Rs 1,104 crore) till NJ’s debut. The house was later taken over by Kotak MF. The next two highest NFO inflows were recorded by Standard Chartered mutual fund and Morgan Stanley mutual fund, as per Value Research data. IDFC Core Equity Fund, formerly IDFC Classic Equity Fund and, before that, Standard Chartered Classic Equity Fund, had collected Rs 1,009 crore in June 2005. At that time, the fund was sold largely by Standard Chartered Bank. IDFC Ltd acquired Standard Chartered mutual fund in 2008. Prior to that, the highest ever maiden NFO collection was managed by Morgan Stanley Growth Fund (MSGF) in 1994. HDFC AMC acquired Morgan Stanley mutual fund in 2014. MSGF is now known as HDFC Large and Mid-Cap Fund.

Focusing on passive investments

NJ mutual fund is among the new crop of houses that aim to launch schemes in the passive space. However, they may not be the typical passive variety. At least that’s what comes through from a recent interaction with NJ India Invest’s co-founders, Neeraj Choksi and Jignesh Desai. The fund house will launch rules-based schemes. NBAF’s equity allocation will be decided by four factors: value, quality, momentum and volatility. On the debt side, Rajiv Shastri, NJ Mutual Fund’s director and chief executive officer says that the scheme will not take interest rate or credit risks. “NBAF will only invest in short-term securities and treasury bills,” he says.

The past year-and-a-half have been good for equity markets, after the initial shock of COVID-19 in March 2020. From its March 2020 lows, the benchmark index S&P BSE Sensex has more than doubled in an absolute basis.

Equity mutual funds have got steady and healthy inflows so far this year. Inflows in mutual funds through systematic investment plans recently crossed Rs 10,000 crore.

Four of the 10 instances of highest NFO collections for equity-oriented schemes occurred in this bull-run. SBI Balanced Advantage Fund got Rs 14,500 crore in August 2021 and led the pack. This was more than what ICICI Prudential Flexicap Fund collected (Rs 9,500 crore) a month earlier.

The lure of hybrid funds

Balanced advantage funds have been popular with investors, as equity markets have risen continuously. These funds switch between equities and fixed income, depending on market conditions. This way, a BAF takes away the difficulty in deciding asset allocation from you. When equity markets and valuations fall, a typical BAF switches back to equities and buys them cheap.

Kayezad E Adajania
Kayezad E Adajania heads the personal finance bureau at Moneycontrol. He has been covering mutual funds and personal finance for the past two decades, having worked in Mint and Outlook Money magazine. Kayezad was the founding member of Mint’s personal finance team when it was set up in 2009.
first published: Oct 26, 2021 10:56 am