Mutual fund providers have released a slew of New Fund Offers in recent months.
The difference between an NFO and an existing mutual fund scheme is that with an NFO, units can be purchased for Rs 10, whereas in an existing fund, units are purchased at the Net Asset Value (NAV).
An existing fund's NAV is higher since it is making returns on the money it has already raised and invested in various asset classes.
The NAV, or net asset value, is how these profits are distributed to investors.
Purchasing new fund orders
Because an NFO is only open for a limited time, investors frequently hurry to buy in it.
However, unlike an existing fund, where you can follow prior performance, an NFO does not have a track record against which you may evaluate its performance.
As a result, before you invest in an NFO, ask yourself the following questions:
Does the fund firm have solid investment processes and systems in place?
The fund house should ideally have:
It has been in operation for at least 5 years.
A reputable fund management group
A sponsor with a good reputation.
The fund house must also follow strong investment methods and systems, as well as a sound risk management framework.
If these criteria aren't met, it's best to skip the NFO.
Additionally, see if:
The fund house's schemes have an excellent track record.
Existing funds managed by the fund house and the fund manager have outperformed their peers in their respective categories.
Is the fund's investment philosophy appropriate for the present market environment?
If these conditions are met, there is a better chance that the NFO will be properly controlled and perform successfully.
Is the investing opportunity one-of-a-kind?
Only consider an NFO if it offers a unique investment idea that suits your risk profile, investing objectives, and has the potential to add value to your portfolio.
Examine the scheme's essential characteristics, such as the asset allocation, the types of assets it will invest in, the investing strategy and purpose, and so on.
What is the mutual fund scheme's investment objective?
Read the Scheme Information Document (SID) to see if the investing objective suits your requirements.
If you want to achieve modest growth while preserving your capital, don't invest in an equity-oriented NFO.
However, keep in mind that there is no guarantee that the specified investment goal will be met.
What is the asset allocation and risk level of the fund?
The asset allocation of a scheme decides whether it is equity-oriented, debt-oriented, hybrid, and so on.
The risk level is determined by the asset allocation of the fund among the various asset classes.
The SID also has a risk-o-meter that specifies the scheme's risk rating.
The SID specifies both asset allocation and risk level.
Consider an NFO that is best suited to your risk profile and asset allocation (equity, debt, and gold).
What is the investment strategy of the funds?
The fund's investment plan explains where it will invest, how the underlying portfolio will be constructed, the investment style that will be used, and so on.
It could assist you in determining whether and how the fund's stated investment objective would be met, as well as whether or not the investment idea is truly unique.
How will the fund's performance be measured?
Depending on its declared investment aim, the performance of any mutual fund scheme is measured against a pre-determined benchmark index.
Knowing the benchmark index might help you predict how the fund will choose stocks to invest in in the future.
Who will be in charge of the fund?
The fund manager (and the fund management team) are in charge of the fund's performance.
Examine the fund manager's educational qualifications, fund management experience, the number of schemes he or she administers, and how those schemes have performed.
If the existing funds managed by the NFO's fund manager have a solid track record, then investing in the NFO is a sensible idea.
Consider adding just those NFOs to your mutual fund portfolio that are distinctive, have the potential to add value to your portfolio, and are appropriate for your risk profile, investing objectives, financial goals, and time available to attain those objectives.
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