While there is a growing demand for index funds, on the active side as well funds houses are exploring niche areas like auto, manufacturing, technology, energy and business opportunities as well as special situation funds.
As more retail investors chant the ‘mutual fund sahi hai’ mantra, asset management companies are trying to cash in on the enthusiasm through offbeat offerings.
From tourism to business opportunities, mutual funds are launching a slew of new fund offerings (NFOs), specifically in the thematic and sectoral funds space
The latest AMFI data for June 2024 shows that NFO equity inflows (active) surged 54.1 percent month-on-month to Rs 151.4 billion.
Finding your niche
Recently, Tata AMC announced the launch of its Nifty Tourism Index Fund, the first-ever tourism-focused fund. The index includes travel and tourism-related industries such as hotels and resorts, tour and travel-related services, restaurants, airlines, airport and airport services, and manufacturers of trolley bags, suitcases and luggage. The scheme opened for public subscription on July 08, 2024, and will close on July 19, 2024.
Also read: Tata Mutual Fund launches India’s first tourism thematic fund; should you invest?
Similarly, ICICI Prudential also announced its Oil and Gas ETF, another industry first as well as Mirae with its Mirae Asset Nifty EV and New Age Automotive ETF and Motilal Oswal’s Nifty Defence Index Fund. The NFO for ICICI Pru’s Oil and Gas ETF opened for public subscription on July 08, 2024, and will close on July 18, 2024.
The drive behind an increasing number of niche passive NFOs, according to AMCs is significant investor appetite for these offerings.
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Over the last three months, across fund houses around 67 drafts offer documents have been filed, across both active and passive funds.
A la carte
Siddharth Srivastava, Head – ETF Products & Fund Manager, Mirae Asset Investment Managers (India), says that these passive NFOs offer unique opportunities that may appeal to investors with varying risk profiles.
“For instance, a low volatility based fund may interest a risk-averse investor whereas an alpha-based fund may interest a bullish investor with higher risk appetite,” he told Moneycontrol.
“Some investors may be bullish on IT sector and some may be bullish on new age themes like EV. A lot of these opportunities do not exist on the Active side or may exhibit fund manager view on a concerned strategy or theme,” he said.
While there is a growing demand for index funds, on the active side as well funds houses are exploring niche areas like auto, manufacturing, technology, energy and business opportunities as well as special situation funds.
More on the way
A quick scan of data from SEBI shows that this trend is expected to continue, with fund houses filing applications for other niche areas like Motilal Oswal Digital & Technology Fund, Kotak Transportation & Logistics Fund and a fresh new set of manufacturing, EV ETF and auto funds.
Market experts say this trend is not expected to stop anytime soon. “People are willing to explore differential products with good potential, which suit their investment objective and risk profile, ” says Srivastava, adding that, investors are looking at thematic funds both part of their long-term and/or tactical allocation.
“The diverse audience in India means that good niche products can be suitable for a reasonable number of investors,” he says.
Workaround
A less charitable reason for the rush of passive thematic NFOs, according to some industry observers, is that it allows mutual funds to bypass the SEBI rule of only one scheme per category. And given that many sectors have done extraordinarily well over the last few years, the appetite for these niche offerings is strong.
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