As we look ahead to 2025, the landscape of new fund offerings (NFOs) in India is expected to be shaped by fluctuating market conditions. However, innovation within the mutual fund space will remain strong. The growing emphasis on factor-based investing and the evolving tax structure around fund-of-fund products are set to create new opportunities for investors. In particular, several fund houses aim to make their mark with unique offerings driven by these changes. According to recent filings made with the Securities and Exchange Board of India (SEBI), several new and innovative mutual funds are expected to hit the market in the first quarter of 2025. Anticipate the best New Fund Offerings of 2025.
Key Trends to Watch in NFOs
One of the more anticipated offerings is the Bandhan Rediscovery Fund, which will focus on companies that have moved out of the Nifty 100 index. This type of fund aims to capitalize on businesses that may have been overlooked after their exit from the benchmark index, potentially offering growth opportunities at attractive valuations.
Additionally, quant funds are gaining momentum, with players like Bandhan, Nippon, and HDFC looking to launch such products. These funds will leverage quantitative strategies to identify investments based on data-driven models. On the fixed-income side, several fund houses are planning to introduce fund-of-funds that will invest in a mix of debt and arbitrage opportunities, designed to be more tax-efficient than traditional debt funds.
The Return of Quality Investing
After the dominance of value investing in recent years, the investment landscape is shifting towards quality investing, which has outperformed value strategies in recent months. Value investing, which primarily focuses on undervalued stocks, gave way to quality investing, which focuses on companies with strong fundamentals—such as high return on equity (ROE) and low debt levels.
Fund houses are recognizing this trend and are preparing to launch active quality funds in 2025, hoping to benefit from this shift. The Nifty200 Quality 30 index had a negative three-month return of -6.5% in November, whereas the Nifty200 Value 30 index showed an 8.5% decline. However, over one year, value stocks led with a 45% return, while quality stocks had a more modest 26% return. This shift highlights the market sentiment toward companies with robust fundamentals and sustainable growth potential.
Expectations for Equity Market Performance
Looking ahead to 2025, fund managers generally agree that equity returns will likely moderate compared to the stellar performance of previous years. With valuations at higher levels and a slowdown in corporate earnings growth, there is limited room for further upside in equity markets. According to some fund houses, the equity market may experience a period correction—a phase where market prices stagnate, waiting for fresh catalysts that could spark a new rally. This scenario mirrors the 18-month correction between September 2021 and March 2023, after which the market entered a bull phase that continued through September 2024.
While market conditions may not be as favorable in 2025, fund managers remain optimistic about specific sectors and strategies. In the equity space, sectors such as renewable energy, technology, and banking are expected to continue to perform well, driven by ongoing economic recovery, government initiatives, and sectoral growth.
Debt Fund Outlook for 2025
On the debt side, the performance of long-duration funds, which saw remarkable returns in 2024, is expected to moderate. In 2024, long-duration funds were among the top performers, delivering as high as 12% returns. However, fund managers caution that a repeat of this exceptional performance is unlikely in 2025. With interest rate fluctuations and changes in inflation expectations, debt funds may face challenges in replicating the high returns seen in the previous year.
Conclusion: A Year of Opportunities and Caution
Overall, 2025 is shaping to be an interesting year for investors, with new fund offerings expected to bring innovation and diversification opportunities. While equity markets may experience more modest returns due to high valuations and slower earnings growth, the shift towards quality investing and factor-based strategies presents promising avenues. Investors must stay vigilant, focusing on diversification, risk management, and long-term growth while keeping an eye on emerging trends such as quantitative investing and fund-of-fund taxation changes. With the right strategies, 2025 could still offer significant investment opportunities.