The Indian mutual fund industry is experiencing a surge in New Fund Offers (NFOs), with over 180 new launches in the last financial year alone. This collected over ₹75,000 crore across active and passive asset classes.

This trend shows no signs of slowing in FY24-25, with thematic NFOs alone collecting ₹54,700 crore so far. The passive category is also flourishing, with 89 NFOs in index funds and ETFs amassing ₹82,000 crore in collections as of September 2024.

Why the NFO boom?

The rise in NFOs is driven by strong market performance, increasing investor participation, and the introduction of products tailored to specific investment themes and strategies.

Fund houses and brokerages alike are seizing the opportunity to introduce funds that cater to diverse investment preferences.

“The bull market, increased disposable incomes, and growing financial literacy are encouraging retail investors to explore more options,” says Prashant Barwaliya, Head of Investments at Stratzy.

Many fund houses are eager to capture market share by offering niche themes, like sectoral and thematic funds, which stand out in a crowded marketplace due to the Securities Exchange Board of India’s (SEBI’s) one-scheme-per-category regulation.

New players entering the asset management industry also contribute significantly.

Mayukh Datta, Chief Business Officer at ITI Mutual Fund, explains, “With the entry of new AMCs, there is a natural need for them to establish a product suite, which leads to more NFOs.”

Datta highlights that out of the ₹75,000 crore raised, ₹41,000 crore came from active equity funds, with a notable ₹22,650 crore invested in thematic schemes that offer exposure to new ideas or smaller sectors with limited index representation.

Passive NFOs, including index funds and ETFs, have also grown, collecting ₹34,000 crore, representing nearly half of total NFO collections.

Brokerages’ incentives in promoting NFOs

Brokerages and distributors see NFOs as opportunities to attract new clients while retaining existing ones.

Experts believe that brokerages benefit by offering unique products that align with client needs, which helps in both client acquisition and retention.

For distributors, NFOs represent fresh products that offer better commissions than some existing funds, strengthening relationships with clients by delivering a wider range of solutions.

Who gains the most from NFOs?

While investors gain access to more tailored investment options,

experts suggest that fund houses and intermediaries may benefit the most.

NFOs allow fund houses to showcase their expertise, reach a broader market, and expand assets under management.

As Barwaliya notes, “Fund houses get to introduce distinct funds, distributors can offer more targeted products, and investors gain fresh options that might align with specific goals.”

However, historical performance data indicates that NFOs do not always deliver as expected.

FundsIndia’s Senior Research Analyst, Jiral Mehta, shares that out of 110 NFOs launched between January 2019 and April 2024, around 62% have underperformed their benchmarks.

“While NFOs can be appealing, established funds with a track record often provide more reliable returns,” Mehta cautions.

His firm’s analysis showed that only 26% of NFOs ended up in the top performance quartile, excluding sector and thematic funds.

He advises caution and suggests that investors only consider NFOs with unique strategies or experienced fund managers.

A look at NFOs that are currently open

Mutual Fund House	New Fund Offer (NFO)
Aditya Birla Sun Life Mutual Fund	Aditya Birla Sun Life Crisil-IBX AAA Financial Services Index-Sep 2027 Fund
Franklin Templeton Mutual Fund	Franklin India Arbitrage Fund
Mirae Asset Mutual Fund	Mirae Asset Nifty 1D Rate Liquid ETF – Growth
Motilal Oswal Mutual Fund	Motilal Oswal Nifty MidSmall Financial Services Index Fund
	Motilal Oswal Nifty MidSmall Healthcare Index Fund
	Motilal Oswal Nifty MidSmall India Consumption Index Fund
	Motilal Oswal Nifty MidSmall IT and Telecom Index Fund
Shriram Mutual Fund	Shriram Liquid Fund
Zerodha Mutual Fund	Zerodha Gold ETF FoF

Considerations for investors

Experts recommend that investors weigh their options carefully before investing in NFOs.

Since NFOs lack historical performance data, it’s crucial for investors to assess their own financial goals and evaluate whether an NFO offers any unique value not available in existing funds.

Datta suggests, “Investors should consider if they already have exposure to the theme presented in the NFO. They could also evaluate the AMC’s track record with similar asset classes, and ensure the offering aligns with their overall portfolio.”

Mehta also highlights the importance of market timing, noting that while some NFOs can capitalise on favourable conditions, others may not sustain high returns over time.

He advises following a “90/10 rule”—avoiding NFOs 90% of the time unless they meet specific criteria like a unique strategy or a seasoned manager.

Outlook for NFOs in 2025

The NFO market outlook remains robust, especially for passive and thematic funds.

“As more indices and ideas for passive funds emerge, product proliferation will continue,” predicts Datta.