A top fund manager believes in the current environment it is a good strategy for investors to deploy money into equity mutual funds through new fund offers (NFOs).
A NFO is generally open for 15 days and after that the fund manager deploys money over a 1-3 month period slowly giving him the flexibility to take advantage of any volatility that comes in due to high valuations and the US elections.Given the sharp run up of 46% in the Nifty since its lows of March 23 and high PE of 33, fund managers believe there could be volatility ahead and so adopting a staggered approach is important.
“We thought it is a good opportunity to raise money through the launch of our ESG NFO primarily because even though the markets have recovered, a month or two down the line at the time of NFO deployment, there is scope for increased levels of market volatility as they will be watching out for the outcome of the US Election and how the pandemic plays out across the globe,”says S Naren, Chief Investment Officer, ICICI Prudential Mutual Fund. Naren believes the fund manager will be able to capitalize the opportunity by deploying into volatility over a period of few months, especially into those names where we believe the long term potential is good based on ESG factors.
Many fund houses have launched NFOs to fulfil their product baskets. Some of the NFOs which are currently open for subscription include ICICI Prudential ESG Fund, Sundaram Bluechip Fund, Principal Large Cap Fund and Nippon India Nifty Smallcap 250 Index Fund. Some of the NFOs that closed in the recent past are Invesco India Focused 20 Fund that mopped up close to Rs 650 crore andAxis Global Alpha Equity Fund of Fund that mobilised Rs 1250 crore.
With the business environment changing post the pandemic fund managers believe there are several new themes which are likely to do well. An existing mutual fund scheme is mandated to be fully invested which makes it difficult for the fund manager to restructure the portfolio or take advantage of falling markets to add more.
In comparision in a new fund offer, where the fund manager has to built a diversified portfolio, he starts fresh has cash to deploy and can take advantage of any volatility to his benefit.