Just last month, the ICICI Prudential Flexi Cap fund had raised a record Rs.9,800 crore. This month, SBI MF has raised Rs.13,000 crore through the NFO of SBI Balanced Advantage Fund. What explains this sudden surge in interest in Indian mutual fund NFOs and what did the investors find so appealing here.
All about bancassurance model
If there is one model that has become the basis for the growth in mutual fund AUM, it is the bancassurance model. If you look at the top-7 players in India by Mutual Fund AUM, 5 of these players are affiliated to banks. The exceptions are Birla Sun Life Mutual Fund and Nippon Mutual Fund. The bancassurance model has helped Kotak MF and Axis MF grow at a very rapid pace in the last few years to emerge among the top-7. Not too far behind is IDFC MF, again a bancassurance play on mutual funds.
Did the bancassurance model really make a big difference to the SBI MF Balanced Advantage Fund?
Some of the bancassurance numbers are staggering. For example, out of the total collections of Rs.13,000 crore, nearly 6,000 crore came from the branches of SBI. Out of the 22,000 branches of SBI, nearly 14,000 branches are expected to have contributed to the Balanced Advantage Fund NFO. Clearly, it is a kind of edge that is not just difficult but impossible for other mutual fund players in India to even remotely match. That is an edge.
A good NFO story too
It would be a little disdainful to just dismiss the record collections of the SBI MF Balanced Advantage NFO as purely bancassurance. For starters, there was a lot of demand for a balanced fund at these elevated levels of the Nifty and Sensex. Secondly, the fund is an auto allocation tweaker. It automatically cuts equity holdings when indices move too high and adds equity positions when the index becomes too undervalued. This ensures that the fund remains fully invested close to the top and keeps cash available when the market falls. Lastly, the fund also offers a fixed withdrawal formula like 0.5% a month or 3% for 6 months or 6% for the full year. This is one more feature of the fund that has attracted. In short, while bancassurance model of SBI MF did work, it was also a NFO product that was well thought through and timed to perfection.
Why investors must be cautious
Typically, NFOs get bunched when there is euphoria in the market and when you buy such NFOs, you are buying into the market euphoria. Secondly, investors will see a plethora of NFOs in sectoral and solution funds. Such funds do not have any restrictions on the number of funds an AMC can launch. Hence it is possible for the AMC to raise NFOs with minor tweaks. For investors the lesson is that they may get caught up and sucked into the market euphoria unwittingly!