What Is With The Index Fund NFOs?
Have you seen the number of NFOs being launched my mutual fund houses in the recent past? What happened? I am not really sure why, but in the last few days my inbox has been receiving all kinds of emails about a new fund offer (NFO) all of which were are for index funds or ETFs. Seems like passive investment is the vogue these days. How did it come into fashion all of a sudden? May be the fund houses think that active funds will not perform well and want to launch some passive funds. Perhaps they wanted to help investors make money. I am just kidding of course.
More likely the reason could be demand. May be there is a lot of demand from the investors for index funds. Funds houses are always happy to give what the consumers want because they just want to make more money. More AUM means more money for the fund house. So why not. I am also part of the problem, because I am also one of those investors creating demand by having started investing in index funds lately. I did not know others were also doing the same too :). Again, this is just a hunch. I have not done any market research to confirm if that is the case.
Here is the list of equity mutual funds NFOs that have launched in the recent past.
|Axis Nifty Midcap 50 Index Fund||Mid-cap|
|Kotak Nifty 100 Low Vol 30 ETF||Low volatility|
|Motilal Oswal S&P BSE Low Volatility ETF||Low volatility|
|Motilal Oswal S&P BSE Low Volatility Index Fund||Low volatility|
|Navi Nifty IT Index Fund||IT|
|Tata Nifty India Digital||IT|
|Navi NASDAQ 100 FoF||International|
Perhaps the actively managed funds in those categories were under performing the index? I don’t like to do this kind of research because it is not going to change anything in the way that I invest. So who cares really. Anyway, the sudden rise of the markets to new highs brought in a lot of new investors to the market as a result of FOMO (fear of missing out). Now, I don’t know if they are entering at the right time or not, but the more important question I have for them is whether they have the right temperament. Otherwise, stock market may be a bad place to find out.
I also noticed a bunch of ETFs being launched perhaps to encourage the demat account holders. While all this is happening, the markets are not doing that great, so the the IPOs have all dried up. You know IPOs only happen when the going is good because the early investors are there to cash out as soon as the euphoric retail investor will pay any amount on an IPO. The only exception in this case seems to be Navi Technologies which intends to launch its IPO even in this market situation.
While we are on the topic of IPOs, the Indian government was planning to launch LIC IPO to meet its disinvestment target. But the market conditions are not very favorable all thanks to the Ukraine Russia war. I was waiting for RBI to increase the interest rates given that inflation is inching up, but now I am wondering if RBI will wait for the IPO to complete before bring down the markets further with rate hikes. If you did not understand what I said in the last 2 paragraphs, don’t worry it is not really important. Those are only useful for people who like to time the market and make tactical calls which most of the investors should not do anyway.