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Informist, Tuesday, Apr. 15, 2025

 

By Christina Titus

 

MUMBAI – Net investment inflows into sectoral and thematic funds fell 97% to INR 1.70 billion in March from INR 57.12 billion in February, mainly because of near absence of any new fund offers. This is the lowest net inflow into thematic funds since October 2020, according to data collated by Informist. These inflows are also sharply down from a year ago – net inflows into such funds were INR 79.18 billion in March 2024. Net inflows into thematic funds had peaked in June 2024 at INR 223.52 billion.

 

The sharp fall in net inflows into thematic funds dragged the overall net inflows into equity mutual funds to a 11-month low of INR 250.82 billion in March.

 

Fund managers and mutual fund distributors attribute the fall in net inflows into thematic funds to a slowdown in new fund offers and market volatility. "There were very few new fund offers in the sectoral or thematic fund category," D.P. Singh, deputy managing director and joint chief executive officer at SBI Mutual Fund, said. "That may be the reason for less inflows, because most money comes to the category via new fund offers usually.... The sentiment is not entirely bullish on the category, which also weighed on inflows."

 

The category saw just one new fund offer in March, that of Motilal Oswal Active Momentum Fund, which collected INR 400 million. So far in the calendar year, 11 new fund offers have been launched for thematic funds – three in January and seven in February, which collected an average of INR 9.46 billion and INR 2.96 billion per offer, respectively. While thematic fund offers dried up, other new fund offers continued in March. As many as 30 new fund offers were launched in March – 11 for index funds and 10 for other exchange traded funds. In 2024-25 (Apr-Mar), fund houses had floated 52 new fund offers for thematic funds, which collectively garnered INR 736.33 billion. The total new fund launches in FY25 were 245, which together collected INR 1.08 trillion. 

 

The current market volatility due to geopolitical tensions also played a major role in lower inflows and new fund offers. "Asset management companies must have deferred (new fund offers) and adopted a wait and watch stance," a senior equity fund manager at a fund house said. Equity markets saw more volatility in March ahead of reciprocal tariffs announcement by the US President Donald Trump. The Nifty 50 moved in a wider range of over 1900 points in March as compared with an average of 1500 points in the six months before that.

 

Inflows into thematic flows may have also been dampened by the scrutiny of the Securities and Exchange Board of India on these funds. The regulator had stressed the fund industry should come up with innovative ideas rather than sell more of existing products and that mis-selling of thematic funds has been a concern for a while, a market participant said on condition of anonymity. 

 

Speaking at an event in late February, the then SEBI chairperson Madhabi Puri Buch acknowledged the proliferation of thematic schemes due to "arbitrage between normal schemes and new fund offers". "Arbitrage took many forms and therefore there was an incentive, which was a bit of a perverse incentive to launch more and more NFOs (new fund offers)," she had said.

 

She had also said that the regulator will focus on addressing the root cause of the proliferation of thematic funds to resolve the problem rather that limiting the number of thematic schemes.

 

Market participants expect a rebound in thematic funds when market conditions improve. "Thematic or sectoral funds have their own place in any investor asset allocation. I think the category will continue to do well, however, overall equity needs some kind of stability before incremental aggressive launches happen. There is so much uncertainty right now. Whenever there is some clarity, I think asset management companies will speed up efforts to push new fund offers and even existing schemes in the category," the senior fund manager said.

 

Equity schemes held assets of INR 29.45 trillion as of Mar. 31, up 7.5% on month. The mutual fund industry saw net outflow of INR 1.64 trillion in March, primarily owing to outflows from debt schemes. The industry's assets under management stood at INR 65.74 trillion as of Mar. 31, up 1.9% on month. In terms of performance, one-week returns for equity-thematic category are (-)0.21% and its one-year returns are (-)1.55%, Value Research data showed.  End

 

Edited by Ashish Shirke

 

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