NFO themes that played out

Normally, the sectoral theme that drives the markets becomes the NFO theme. That was not the case this time around. The NFO story was dominated by Flexi Caps and Balanced Advantage Funds (BAF), which accounted for 50% of all NFO collections in 2021. The biggest NFO collection in 2021 was the SBI BAF, which collected a record Rs.14,505 crore in its NFO. The other big NFO during the year was the ICICI Pru Flexi Cap NFO that collected a record Rs.9,808 crore. If you look at the other key NFO stories for 2021, it was distributed across some very key themes. Business cycle funds were quite popular in the year 2021. The other segment that saw a spate of NFOs in the year was focused sector funds. Then there were international FOFs, which also gathered steam during the year. In the debt fund category, the only category of fund that saw some NFOs was the Floater Funds. That is obvious considering that the hawkish signals through the year and a spike in inflation had created latent demand for such floaters. Otherwise, debt funds lost a lot of market share through the year. 

NFO watchlist for investors

One of the popular myths about putting money in NFOs is that they are issued at par value of Rs.10. That hardly makes any difference in the final analysis. At the end of the day, these funds will be investing the collected funds when the Sensex level is close to 60,000 so the price risk is always going to be there. This is something to note for the wave of new investors who have been coming into mutual funds in a big way. In the last 1-year, total BSE investor accounts crossed the 9-crore mark, CDSL demat numbers crossed the 5.30 crore mark and SIP folios are nearing 5 crore. All these point to a lot of retail money and NFOs appear to be the easiest driver. 

Onboarding via NFOs

One of the learnings for advisors and brokers has been that it is easiest to onboard new investors through IPOs and NFOs. The novelty factor always works in the favor of these new issues. It has been like a virtuous cycle. A surge in NFOs is driving mutual fund folios and SIP folios, which in turn is driving the demand for NFOs. For a long time, these NFOs have been the easiest way to onboard new customers. However, the investors need to be wary of a simple fact. Investing in mutual funds is about goals and not about temporary allure of investment ideas. That should be the approach even in NFOs. Don’t lose sight of your asset allocation! ©