New Fund Offers explained – Should you bite the bullet or stick to the tried and tested?
- Mutual fund companies launch NFOs to introduce fresh investment avenues, capitalising on
markettrends or addressing specific investor demands.
- Typically, NFOs are launched amidst a buoyant market, capitalising on high investor confidence and optimism.
- Experts say investors should
investin NFOs only if the product is truly differentiated from existing products and adds value.
AdvertisementThe Indian markets have been on a bull run with benchmark indices, the Nifty and the Sensex, scaling new highs. Along with initial public offerings or IPOs that have hit Dalal Street, new fund offers (NFOs) by mutual fund houses have also been the flavour of the season. In fact, 177 NFOs have been launched this year from the beginning of January to the end of October.
In the quarter from July to September, NFOs registered a ₹22,000 crore inflow. This was nearly four times the inflow in the last quarter. Going forward, the market expects more NFOs to hit the market.
Mutual fund companies launch NFOs to introduce fresh investment avenues, capitalising on market trends or addressing specific investor demands.
These offerings bring new
Why are NFOs being launched in large numbers?
Typically, NFOs are launched amidst a buoyant market, capitalising on high investor confidence and optimism. These offerings are introduced to leverage the favourable sentiment among investors, aiming to attract their capital by tapping into their willingness to invest during such optimistic periods.
“There is confidence in the markets and confidence in the product. Also, the offer docs which have been filed earlier have got approval, so the launches have happened,” says Jimmy Patel, MD and CEO, Quantum mutual fund.
The key question: Should you invest?
“There is a thumb rule that one should not invest in an NFO just for the sake of investing,” says Patel.
For example, since small caps have been registering strong inflows, there would be several NFOs of small caps that would be launched. However, if you have a moderate risk appetite, investing in a small cap NFO would not be a right decision.
Consider investing in a NFO when the fund aligns with your investment goals and offers a unique opportunity unavailable in existing funds. Assess its strategy, track record of the fund manager, and potential for growth. Avoid investing solely based on hype or market timing.
However, if you do not have exposure to a particular asset class or product, this is one way to make an investment, experts say.
“Investors should invest in NFOs only if the product is truly differentiated from existing products and adds value to their portfolio by fitting into their investment objectives. Most investors are best served by investing into existing products with well - established track records,” says Kaustubh Belapurkar, director, manager research, Morningstar India, a firm that provides data and research insights on investments.
Says financial planner Gaurav Mashruwala, “I don’t encourage NFOs as I don’t want my clients money to be in a new scheme. I normally prefer existing to schemes.”
It is important to remember that existing funds may offer similar opportunities with established track records. NFOs lack historical performance data, posing uncertainty. Hence one should focus on established funds aligned with your goals rather than banking on untested offerings.
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