The Mutual Fund Show: What You Should Know Before Investing In NFOs

As asset managers launch new fund offers at a time when the stock markets scale newer peaks, investors need to be more selective.

It's not just the asset allocation that is important (for an NFO); selection by investors also plays a major role, according to Alok Singh, CIO of BOI Investment Managers.

“We always talk of allocation; we talk of ‘Okay, invest X percentage in large cap, X percentage in mid cap, X percentage in XYZ category’. But we rarely talk of selection because selection makes (a) lot of difference as well,” Singh told NDTV Profit, adding the issue needs to be examined in a holistic manner.

That comes as India's benchmark indices ended higher for the sixth consecutive session on Tuesday, tracking the gains led by private lenders.

Singh added another explanation to buttress his argument. "Existence doesn't lead to performance.”

Kalpesh Ashar, certified financial planner of Full Circle Financial Planners, concurred. 

“They come out as a low-hanging fruit of NAV (net asset value) of Rs 10... which the investor feels is a cheap option, and it is the starting phase of the face value of a mutual fund scheme,” he said. “All these points put together it becomes an attractive proposition for an investor to invest in it. The question is whether the investor needs it in his portfolio or not.”

Ashar said an investment firm with an experience of 3-5 years, which has experienced the market cycle, will be able to withstand volatility. 

While NFOs are a way to offer more products and capitalise on the themes, investors should be mindful of their selection, Asher said.

NFOs, Singh said, are a means to raise funds when people have money. If the investments aren’t good, then people will be averse to putting in more funds.