Mutual funds use market decline to enter new categories

Several mid-size fund houses have come up with new fund offers (NFOs) in June, post completion of the regulator-mandated exercise on rationalisation and categorisation of mutual fund schemes.

The Securities and Exchange Board of India, in a bid to make things simple for investors, had asked fund houses to rationalise and categorise schemes so that they have only one fund in each category. Several fund houses, especially the smaller ones, have identified categories where they do not have a fund and are coming up with openend NFOs to fill those gaps.

Some of these NFOs are from Essel Multicap Fund (multicap fund category), Invesco Equity & Bond Fund (aggressive hybrid), BOI Axa Mutual Fund (arbitrage fund) and Mirae Healthcare and ICICI Prudential PHD Fund (thematic healthcare).


“Smaller fund houses have leeway to launch new funds in the categories where they are absent under the new Sebi category. Recategorisation plus the market correction have given fund houses an opportunity to launch new schemes where they believe there is an opportunity,” said Vidya Bala, head of research at fundsindia.com.

The correction in stock prices in May has given fund houses an opportunity to launch schemes. For example, as many as 390 of the Nifty 500 stocks have seen an average correction of 19-20 per cent from the market peak in January. The pharma sector has been in a corrective mode for the last three years and the Nifty Pharma index has lost 11 per cent during the period. In addition, there are a lot of periphery ancillary companies listed around the healthcare space in the diagnostic, hospital and insurance space which are throwing up interesting investment opportunities.

Some wealth managers believe existing open-end schemes of mutual funds are a better bet because investors know the portfolio, style of management of the fund manager and the past track record of the schemes. They say investors should skip NFOs unless there is something that is not available among the existing universe of open-end mutual fund schemes is on offer.

“Fund houses are filling up gaps in their product portfolio. As an investors, there is nothing new in these NFOs which is not available in the existing mutual fund space,” said Gajendra Kothari, managing director at Etica Wealth Management.