Most new fund offers of mutual fund do not offer anything new. It makes sense to know what is unique that the existing schemes do not offer.
Indian equity investors are seen continuing their equity investments in mutual funds, despite recent fall in equity markets. Mutual funds too are keen to attract more retail money and are offering more options to the investors, by launching new fund offers (NFO)– around one theme or the other. While there are hundreds of existing schemes available for ongoing investments, this addition of new fund offers with exotic investment objectives further make the choice difficult for investors. Most experts advise investors not to get carried away by the exotic investment objective and stick to their investment plans. “There is nothing unique offered by most new fund offers. It makes a lot of sense to invest in extant mutual fund schemes with long term track record, in line with one’s financial plan,” says Tarun Birani, founder and chief financial planner, TBNG Capital Advisors.
If you have not heard from your friendly mutual fund broker yet, there are many new fund offers going on in the market. For example, Tata Mutual Fund has five new fund offers of schemes that offer to invest in themes such as banking & financial services, healthcare, consumer India, digital India and resources & energy. Sundaram Mutual Fund recently closed new fund offer of its micro cap fund whereas Axis Mutual Fund closed new fund offer for its Children’s Gift Fund.
Each new fund has an investment objective that offers to make money for investors by investing in a portfolio built around defined theme. Also there are new fund offers that keep hitting the market at regular intervals built around themes such as equity opportunities, economic recovery, capital protection, growth and value investing. Some offer you a ride on the impending economic revival and some offer to extra returns than the market by investing in small cap shares.
Most of these themes may sound very interesting. However, there may not be anything new in it. “One should invest in new fund offer if and only if the investment theme is not available in the existing schemes in the market. Most of the NFO themes are well represented by portfolios of existing schemes, hence one should go for existing open ended schemes with good long term track record,” says Abhinav Angirish, managing director, investonline.in, an online mutual fund distribution entity. Take the example of investing in a new fund offer of a closed ended fund that aims to make money by investing in a portfolio of small and mid cap stocks. There are many schemes that offer a diversified equity portfolio comprising stocks of companies of all sizes. Also there are many good midcap focused open ended schemes. It makes more sense to go with an existing scheme, which has a track record than experimenting with a new one. The next time you hear of a new fund offer, ask the right question – what is there on offer that an existing scheme is not offering?. It does not end here.
“How many retail investors really know which theme to bet their money on?” asks a wealth manager. Most retail investors cannot decide how much of their money should go to each of these investment themes in equity markets. It pays to let the decision to a professional fund manager of a diversified equity fund. If the theme deserves some money, the fund managers of existing diversified equity funds will not ignore it.
A restrictive mandate is another point that makes an exotic NFO unattractive. If you are contemplating an investment in a new fund offer aimed at buying shares in a particular sector, do not forget the fact that you are taking more risk than a new fund offer of a diversified equity fund. Most themes limit the stock universe for the fund manager, as compared to the stock universe of a diversified equity fund. Over a period of time, if the theme fails to take off, there is a high possibility that investors’ money may earn less return than that offered by the broad market.
Not everyone is against investing in NFO. Of course, most such recommendations come with caveats. “If you are an aggressive investor keen to invest in new fund offer focusing on different sectors, conduct a proper due diligence on the credentials of the fund management team with regards to specific themes,” says Renu Pothen, research head – fundsupermart, an online mutual fund distribution entity.
Also conservative investors keen on preserving capital can consider new fund offers of capital protection oriented funds that aim to invest in a mix of debt and equity. However, most experts make it clear that better tax efficient returns can be earned by investing in a combination of an equity fund and debt fund. While the new fund offers will always be there as long as investors are waiting for something new, it makes a lot of sense to write a cheque only after knowing the investment opportunity. Otherwise the good old long term war horse – diversified equity funds with a ten year track record surely make a better investment option. Equity fund Balanced fund -(moneycontrol Bureau)
Indian equity investors are seen continuing their equity investments in mutual funds, despite recent fall in equity markets. Mutual funds too are keen to attract more retail money and are offering more options to the investors, by launching new fund offers (NFO)– around one theme or the other. While there are hundreds of existing schemes available for ongoing investments, this addition of new fund offers with exotic investment objectives further make the choice difficult for investors. Most experts advise investors not to get carried away by the exotic investment objective and stick to their investment plans. “There is nothing unique offered by most new fund offers. It makes a lot of sense to invest in extant mutual fund schemes with long term track record, in line with one’s financial plan,” says Tarun Birani, founder and chief financial planner, TBNG Capital Advisors.
If you have not heard from your friendly mutual fund broker yet, there are many new fund offers going on in the market. For example, Tata Mutual Fund has five new fund offers of schemes that offer to invest in themes such as banking & financial services, healthcare, consumer India, digital India and resources & energy. Sundaram Mutual Fund recently closed new fund offer of its micro cap fund whereas Axis Mutual Fund closed new fund offer for its Children’s Gift Fund.
Each new fund has an investment objective that offers to make money for investors by investing in a portfolio built around defined theme. Also there are new fund offers that keep hitting the market at regular intervals built around themes such as equity opportunities, economic recovery, capital protection, growth and value investing. Some offer you a ride on the impending economic revival and some offer to extra returns than the market by investing in small cap shares.
Most of these themes may sound very interesting. However, there may not be anything new in it. “One should invest in new fund offer if and only if the investment theme is not available in the existing schemes in the market. Most of the NFO themes are well represented by portfolios of existing schemes, hence one should go for existing open ended schemes with good long term track record,” says Abhinav Angirish, managing director, investonline.in, an online mutual fund distribution entity. Take the example of investing in a new fund offer of a closed ended fund that aims to make money by investing in a portfolio of small and mid cap stocks. There are many schemes that offer a diversified equity portfolio comprising stocks of companies of all sizes. Also there are many good midcap focused open ended schemes. It makes more sense to go with an existing scheme, which has a track record than experimenting with a new one. The next time you hear of a new fund offer, ask the right question – what is there on offer that an existing scheme is not offering?. It does not end here.
“How many retail investors really know which theme to bet their money on?” asks a wealth manager. Most retail investors cannot decide how much of their money should go to each of these investment themes in equity markets. It pays to let the decision to a professional fund manager of a diversified equity fund. If the theme deserves some money, the fund managers of existing diversified equity funds will not ignore it.
A restrictive mandate is another point that makes an exotic NFO unattractive. If you are contemplating an investment in a new fund offer aimed at buying shares in a particular sector, do not forget the fact that you are taking more risk than a new fund offer of a diversified equity fund. Most themes limit the stock universe for the fund manager, as compared to the stock universe of a diversified equity fund. Over a period of time, if the theme fails to take off, there is a high possibility that investors’ money may earn less return than that offered by the broad market.
Not everyone is against investing in NFO. Of course, most such recommendations come with caveats. “If you are an aggressive investor keen to invest in new fund offer focusing on different sectors, conduct a proper due diligence on the credentials of the fund management team with regards to specific themes,” says Renu Pothen, research head – fundsupermart, an online mutual fund distribution entity.
Also conservative investors keen on preserving capital can consider new fund offers of capital protection oriented funds that aim to invest in a mix of debt and equity. However, most experts make it clear that better tax efficient returns can be earned by investing in a combination of an equity fund and debt fund. While the new fund offers will always be there as long as investors are waiting for something new, it makes a lot of sense to write a cheque only after knowing the investment opportunity. Otherwise the good old long term war horse – diversified equity funds with a ten year track record surely make a better investment option. Equity fund Balanced fund -(moneycontrol Bureau)
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