Should I Invest in New Fund Offer (NFOs)?
Simple
Answer - “99% AVOID”
Detailed
Answer:
Anything NEW catches the buyer’s
attention & hence NFOs are not an exception. But it is a avoid in almost 99%
of the cases. Reasons being:
·
Myth of 10/- cheap NAV
– NFOs are not cheaper as they are launched at 10/- NAV. Neither are 100/- NAV
funds costlier. They are both investing in stocks & based on the returns
they get, the NAV increases. A 10% increase of 10 NAV will make it 11 & the
same in 100 NAV will make it 110. Click this link to understand this better.
·
Nothing New to Offer:
Most of the cases, the fund will just be a duplicate of the funds already
available in the market. We would have been invested already in them, but NEW
always catches our attention in the fear that we are not missing out something
great.
·
No Track record:
NFOs don’t have previous track record to evaluate their performance. Most of
the NFOs had been under-performing funds in their initial years of launch. The
existing similar funds in the market with a proven track record may be a better
candidate for investments.
·
Wrong Launch Time:
Typically, NFOs are launched to capitalize on the recent strong performance in
a particular sector / theme. This make the probability of future returns from
the fund not so great as we would now be purchasing at higher levels of that
sector / theme. In general, it is better to avoid sectoral / thematic funds as such.
·
Clutters the portfolio: Buying each & every NFO
based on the hype / FOMO ends up with up too many funds in the portfolio,
making it difficult to maintain.
Conclusion:
We had mentioned that we can invest in NFOs in 1% of the cases. It may be
perhaps a novel fund strategy is getting launched which will be a good addition
to our over-all portfolio. Otherwise, as a general rule, it is better to give
NFOs a miss always!
