How to invest in a mutual fund NFO?
Many investors, especially new ones, get excited whenever a new new fund offer is launched. But is it a wise decision to invest in them?
Last Updated: Dec 03, 2019, 04.37 PM IST|Original: Dec 03, 2019, 04.32 PM IST
A new fund offer is a new mutual fund scheme launched by a fund house. Why do fund houses launch new plans? Obviously, they want to launch new schemes to attract new investors and shore up more assets. Also, they want to complete their bouquet of offerings.
- Why do you want to invest in an NFO?
Many investors used to believe that buying a scheme at Rs 10 NAV is a smart thing to do. This used to be a huge myth among investors. However, now most mutual fund investors know this is a foolish notion. A mutual fund scheme’s NAV reflects the worth of its investments minus its liabilities and costs. If a scheme is new, it hasn’t invested anywhere. That is why the NAV is Rs 10. If a scheme has been around for a long period and successful in its investments, it will have a higher NAV.
- You like the fund house?
Some people want to invest in an NFO because they already have investments in the fund house, and they like the management. It is a natural sentiment, but you don’t have to be emotional about your investments. Let the fund house build a track record for its scheme, wait till that time.
- That means I shouldn’t invest in NFO?
Yes, you can ignore most NFOs. It is always better to stay with a mutual fund scheme with a long performance record than a scheme that is yet to prove its worth. Look for schemes that have performed consistently in different market cycles. Ignore flash-in-the-pan performances.
- There are no exceptions?
Yes, you may consider investing in an NFO if it is offering something unique. Or it is offering something that is not available in the market. Take our word for it, this is very rare. So, you can safely ignore most NFOs.
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