The escalating US-Iran conflict and resulting geopolitical uncertainty have significantly curtailed new fund offers (NFOs) in India's mutual fund market, impacting investor sentiment and overall industry inflows.
Key Points
- Only nine equity new fund offers (NFOs) launched in March, despite nearly two dozen approvals from SEBI, due to the US-Iran conflict.
- Launch activity has been particularly weak in the latter half of March, with a sharp drop in new scheme filings after March 15.
- The US-Iran conflict has exacerbated existing pressure on Indian equities, leading to a 9 per cent fall in the Nifty 50 in March and investor discomfort.
- Distributors are hesitant to sell new products amidst market uncertainty, further impacting net inflows into the mutual fund industry.
- The market correction and heightened volatility have also affected initial public offerings (IPOs), with several being paused or rescheduled.
Uncertainty caused by the US-Iran conflict is forcing fund houses to defer launches.
Only about nine equity new fund offers (NFOs) have hit the market so far in March, out of nearly two dozen schemes approved by the Securities and Exchange Board of India (Sebi).
Launch activity has been particularly weak over the past two weeks as the conflict escalated.
Impact on Fund Filings and Investor Sentiment
Filings on the Sebi website -- made after receiving regulatory approval and ahead of launch -- have also dropped sharply in recent weeks.
Fund houses have filed for just three schemes after March 15, compared with 19 in the first two weeks of the month.
Launches are usually lower in March as the financial year draws to a close.
However, heightened geopolitical uncertainty and subdued equity market sentiment have made this an unfavourable period for NFOs.
“March is typically a tight period in terms of liquidity, and you usually don’t see too many NFOs during this time.
"This year, the situation has been compounded by the conflict.
"The lower number of launches suggests fund houses are choosing to wait for more stable conditions, as volatility in crude oil prices, along with concerns around inflation and interest rates, is keeping investors cautious,” said a senior mutual fund (MF) executive.
The US–Iran conflict, now in its fourth week, has added pressure on Indian equities, which have already been under strain for nearly 18 months.
Escalating geopolitical tensions and a spike in crude oil prices have dampened investor sentiment, triggering broad-based selling.
The Nifty 50 has fallen around 9 per cent so far in March.
The correction has translated into losses for MF investors, causing discomfort, especially among those who entered equities in recent years and are experiencing a prolonged phase of volatility for the first time.
Distributor Hesitation and Broader Market Effects
According to another MF executive, distributors are also hesitant to sell new products during such periods.
“Distributors are seeing a bit of panic among investors as there is no clarity on how the situation will evolve.
"While some money has come in as investors buy the dip, it is still not the best time to launch new funds.
"It is better to wait for some stability,” he said.
Lower NFO activity has a direct impact on net inflows in the industry, as new schemes are a key source of lump-sum investments.
Sunil Subramaniam, former MF chief executive officer (CEO) and currently founder and CEO of Sense and Simplicity, said the decline in launches in March could also be due to other factors.
“A slowdown in NFOs is normal during periods of uncertainty, as investor sentiment takes a hit.
"Further, March sees a greater focus on selling insurance products by large distribution channels such as banks and national distributors to meet annual targets.
"Hence, they are unlikely to offer the usual support to MFs for NFOs during this period,” he said.
The impact of the market correction is not limited to NFOs.
The past few weeks have also been turbulent for initial public offerings (IPOs).
Earlier this month, PhonePe said it had temporarily paused its IPO, originally slated for the end of March. Similarly, XED -- set to be the first IPO from Gujarat International Finance Tec-City International Financial Services Centre -- had to be rescheduled amid the Gulf crisis.
Toll plaza management firm Innovision, meanwhile, was forced to cut its price band and extend its issue closing date due to weak demand.
Despite these measures, its shares plunged 28 per cent on debut this week.
Market participants say heightened volatility is weighing on investor sentiment, curbing appetite for fresh equity issuances.
“Uncertainty is visible across asset classes -- gold, silver, real estate, and commodities.
"Once crude stabilises and geopolitical tensions ease, investors will return,” said Mahavir Lunawat, chairman and managing director of Pantomath Capital Advisors.
“Volatility may slow momentum temporarily, but it will not derail the medium- to long-term trajectory.”
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