Fund houses are focusing on existing schemes rather than launching new ones

Losing The Steam

A MUTUAL fund investor is today spoilt for choice. A prospective investor can choose from an estimated 500 mutual fund products today. The range is so vast that there have been cases when investors have found no striking difference between two schemes launched by same fund house. Another fall out of this overkill of new fund offers in the past has been that be flood of existing products is that existing fund houses are running out of new ideas. No wonder, in the past two years, the number of new fund offers has declined. MF investors especially those looking for fresh investment themes face immense confusion in choosing funds that would meet their investment goals. Hence, fund houses are better off reviewing the performance of their existing schemes rather than launch new ones. ET Intelligence Group is investigating why NFOs have lost their sheen and why you should concentrate more on your existing schemes. Also given the uncertainty in equity markets, we feel investors should go for hybrid or balanced funds. 

THE CRUX: MF experts believe that most old fund houses have enough range of product mix and hence they should focus their energies on existing schemes rather than waste managerial time in launching new schemes. Even if new fund offers come in they will from new entrants in the MF industry. However, these NFOs are likely to be niche offering as the market is already floated with hundreds of traditional products. According to monthly redemption data by AMFI, since August last year, MF investors have resorted to huge redemptions. With the exception of January and February, investors have withdrawn money from their MF schemes every month and redemptions to an extent of Rs 2,000 crore per month in equity funds. Much can be attributed to investors' poor outlook about market future course. This also shows that investors are not convinced about the long-term attractiveness of the equity markets and they want to book profit at the first available opportunity. Genesis of this can be seen in the way markets have moved in the past six months — the Sensex has given barely 2% returns. Also in the past few quarters as interest rates rose, mid and long tenure debt funds have fallen off the investors' radar. Hence, balance funds that invest in both equities and debt market seem to be a convincing proposition for fund mangers and investors alike. 
GOING FORWARD: Balance/hybrid funds as such have a combination of equity and bonds. Hence even if markets rally after a good monsoon andinflation is reigned in, investors wouldn't miss the rally. Says Venkata Subramaniam, a mutual funds analyst at a leading broking firm, "Its advisable for investors to go for balanced funds as they offer bond and equity market exposure." More so in the last two years it has been observed that balanced equity fund category (on the average) has beaten the equity diversified category by fair percentage." 
    In the past two years, hybrid/balanced funds category has given around 7% returns, while equity diversified funds category has given around 4.8%. Says Devendra Nevgi, founder and principal partner, Delta Global Partners, a firm that manages large investment portfolios, "The extraordinary experience of incurring huge losses in FY09 —thanks to recession, which resulted in the fall of around 52% of markets, investors remained away from the markets for a long time. It would take long time for investors enter into new equity NFOs with fresh, positive mindset." 
    It is seen that on a year-on-year comparison, new fund offers of balanced funds have increased from 12 to 15, while new fund offers in equity and debt funds category have fallen. Every fund house when launches an NFO, it interacts with large investors, agents and distributors about the acceptability of the theme of the fund to be launched. Hence considering the increase in hybrid/balanced funds it seems that investors prefer a good mix of equity and bond rather than pure equity or bond. 
    rajesh.naidu@timesgroup.com