Mutual funds offer professional management of your investments, making them a convenient market-linked investment option for many investors. Often investors are provided with a plethora of options while investing in mutual funds, and investing via NFOs is another way to enter the mutual fund industry. It allows you to be a part of a mutual fund scheme from the start and grow your investment with it. In this article, investors will gain an understanding of the new mutual funds launched in 2023 and how they should approach these NFOs.

The market regulator SEBI banned the launch of new fund offerings for the Fiscal Year 2022-2023 for a period of three months, ending on July 01, 2023. Due to SEBI’s ban on NFO launches until the usage of pool accounts is discontinued, the amount of money that mutual funds collected through new schemes in 2022-2023 was reduced to Rs 62,342 crores. Other variables, such as excessive market volatility, FPI outflows, and other global issues, etc., had an influence on the NFO collections in FY23, which were 42% lower than in the preceding year, FY 2021-22.

However, according to AMFI monthly statistics, from January to June 2023 (the most recent data available), about 81 open-ended NFOs have been launched. These 81 new funds offer, including debt NFOs, mobilised Rs 19,926 crore. Several newly-launched and small-sized fund houses have also joined the bandwagon. In the second half of 2023, several other NFOs are scheduled to be launched.

Graph 1: AMC-wise number of new mutual funds launched in 2023

Data as of August 04, 2023
(Source: ACE MF) 

As you can see, the highest number of new mutual funds launched in 2023 is by the major fund houses from the mutual fund industry, such as – HDFC AMC, UTI AMC, and so on. These NFOs launched by the fund houses include various investment strategies, themes, and asset allocation. It mainly offers a wide range of choices to align with every investor’s suitability.

Usually, NFOs derive during a surging market when investor sentiment is high and optimistic. It appears that mutual funds have taken advantage of the prevailing optimism in the equity market to launch new products and plug the gap in the existing product range. Notably, investors frequently enter the market during uptrends, encouraged by rising returns, which has resulted in massive inflows into NFOs.

Graph 2: Category-wise number of new mutual funds launched in 2023

Data as of August 04, 2023
(Source: ACE MF) 

The categories that have scaled the number of NFOs launched in 2023 are Index Funds, ETFs and Sector/Thematic Funds. There have been 33 NFOs launched under the passively managed debt-oriented category of mutual funds (Investing in bonds and fixed interest-bearing securities issued by the state and central governments). These mutual fund categories are uncapped, in contrast to other categories. As a result, these categories witnessed the most launches throughout the first half of the current year.

Many mutual fund companies have discovered an opportunity to increase AUM in these categories. Additionally, as the majority of funds are passively managed, the fund management team is not under any need to exceed its competitors and the benchmark. From January to July 2023, there were about 11 new fund offerings in the Thematic Funds area. The themes include business cycle, innovation fund, Defence, active momentum, non-cyclical consumer, quant, manufacturing, transportation, and logistics.

Every year, when the calendar turns, a new wave of new mutual fund listings arrives to attract investors’ attention. Let’s check out the list of new mutual funds launched in 2023:

Scheme Name Launch date Investment Objective
Axis Business Cycles Fund(G)-Direct Plan 02-Feb-2023 Investing in stocks with a focus on riding business cycles through dynamic allocation between various sectors and stocks at different stages of business cycles in the economy.
ICICI Pru Innovation Fund(G)-Direct Plan 10-Apr-2023 Investing in equities of companies and units of global mutual funds/ETFs that can benefit from innovation strategies and themes.
HDFC Defence Fund(G)-Direct Plan 19-May-2023 Aims to invest in equity and equity-related securities of Defence & allied sector companies.
Quant BFSI Fund(G)-Direct Plan 01-Jun-2023 Investing in equity securities of the banking and financial services sector.
Samco Active Momentum Fund(G)-Direct Plan 15-Jun-2023 Investing in stocks shows strong momentum.
HDFC Non-Cyclical Consumer Fund(G)-Direct Plan 23-Jun-2023 Invest in Indian equities focusing on stocks representing the non-cyclical consumer theme across sectors.
Kotak Quant Fund(G)-Direct Plan 12-Jul-2023 Investing in securities selected based on a quant model theme.
Quant Manufacturing Fund(G)-Direct Plan 26-Jul-2023 Aims to invest in stocks of companies that follow the manufacturing theme.
HDFC Transportation and Logistics Fund(G)-Direct Plan 28-Jul-2023 The Fund aims to create a diversified portfolio; it will look for companies which have the potential to benefit from evolving landscape in transportation and logistics theme.
Kotak Nifty Financial Services Ex-Bank Index Fund 24-Jul-2023 It will replicate the composition of the Nifty Financial Services Ex-Bank Index and generate returns that are commensurate with the benchmark performance, subject to tracking errors.
WhiteOak Capital Balanced Advantage Fund 20-Jan-2023 Aims to generate income from a dynamically managed portfolio of equity and debt & money market securities.

(Source: Data collated by PersonalFN Research) 

These are just a few unique schemes of the many new mutual funds launched in 2023.

What are the pros and cons of investing in NFOs?

Mutual funds typically launch new schemes to complete their bouquet of offerings or to offer an interesting theme or idea that may offer an opportunity to create wealth. These New Fund Offers, or NFOs, are a great draw among mutual fund investors.

Whenever a fund house launches an NFO, there is a lot of buzz in the market. NFOs offer you as an investor, the opportunity to invest in a new fund that is launched to meet the specific requirements of particular investors. NFOs are open at NAV of Rs 10 only, this low price appears beneficial to investors. However, NFOs are new in the market, they do not have a track record of the success of the newly introduced investment strategies. This makes it unpredictable and risky. Therefore, just because a fund has been launched does not always suggest that investing in that fund category is a good idea.

While the NFOs have presented investors with ample choices to select from, at the same time, it has added to the confusion. The plethora of launches can make it difficult for you to select the best and most suitable mutual fund schemes for the portfolio.

Thus, there are certain things that every investor seeking to invest in NFOs must consider.

  • The credibility of the Fund house – Check the background of the asset management company, as the investment process/strategy they follow can influence the NFO’s performance.
  • Risk Profile – Investing in NFO is not risk-free; you cannot check the performance and history of the Fund. As a result, predicting how the fund managers will utilise the funds is challenging, and hence you must ensure your risk tolerance aligns with the fund objective.
  • Lock-in Period – Some NFOs like ELSS come with a lock-in period of 3 years; check before investing if the NFO has a lock-in period to avoid any issues later on.
  • Expense Ratio – A higher expense ratio can impact the total returns in the long term.
  • Returns of Peer Funds‍ – Before investing, you should check the returns of similar/peer funds of different fund houses from the same category (do not compare apples to oranges) to get an idea of how the scheme category of the NFO may perform. Do note past performance is not an indicator of future returns.

[Read: 5 Things Investors Should Consider Before Investing in Upcoming NFOs…]

Should one consider investing in NFOs in 2023?

Many mutual fund investors consider investing in an NFO or New Fund Offer because it is from their favourite fund houses. Sometimes a well-known fund manager manages it, and some investors think NFOs are more affordable because they provide the units for Rs 10. However, it is crucial to evaluate the objectives and risks of the NFO to make informed decisions.

Investors may consider investing in new mutual funds launched in 2023 only if they offer a unique investment strategy that could bridge a gap or offer appropriate diversification to their portfolio. It will be wise to opt for an existing scheme that has a proven track record instead of going for something new or unpredictable. You don’t have any data when it comes to new offerings.

Even if the NFO is something unique and can be a good fit in your portfolio, wait for a while to see if the theme or investing strategy pans out as planned. An investor must ensure to invest in any mutual fund scheme, an existing one or an NFO as per their suitability.

[Read: A SMART Way to Select the Best Mutual Funds for Your Goals]

Therefore, it is important to do your research before investing in any new mutual fund launched in 2023 to ensure that it is a good fit for your investment goals and risk tolerance.

This article first appeared on PersonalFN here


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