India Strategy - NFOs - Ban(e) or Blessing? Morgan Stanley Research,

Please Share:: India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��



India Strategy 
Chart Focus: NFOs - Ban(e) or Blessing? 
Key Issue: Has the SEBI ban on “entry load” damaged
the domestic mutual fund industry
? The mutual fund industry’s view is that
the loss of profitability on new fund offerings (NFOs) is
hurting the industry’s growth.

Conclusion: The evidence is a bit different. It shows:
a) the mutual fund industry is gaining more stability
since the SEBI ban on entry load on NFOs. This is
obvious from the falling turnover (gross buying + selling
of equity mutual funds) in the domestic mutual fund
flows
b) The SEBI ban has not affected the relative position
of the industry in the equity markets as is apparent
from the share of the assets under management in
market capitalization which remains intact (Exhibit 5)
and;
c) Contrary to market belief that equity mutual funds
witnessed inflows during 2004-08, the data suggest that
existing schemes of domestic equity funds saw
outflows during 2004-08.
Despite the entry loan ban, in 2010, gross inflows in
equity funds touched a 3-year high. Over the past three
months, equity mutual funds have seen the highest
cumulative inflows since Aug-09. This is distinctly
surprising in the context of market volatility – usually
market volatility causes reticence among mutual fund
investors.  In our view, we could be at the cusp of a
structural shift of significant organic growth in the mutual
fund industry in the coming years. The industry’s profit
dynamics could also shift sustainable volume driven
performance.