Should you invest in these NFOs to maximise returns?
Many mutual fund investors consider investing in an NFO or New Fund Offer when it is from their favourite fund houses. Some investors choose NFO if it is managed by a star fund manager. Some investors compulsively chase NFOs because they believe that NFOs are cheaper because they offer the units at Rs 10.
None of these are strictly valid reasons. Mutual funds typically launch new schemes because they want to complete their bouquet of offerings to increase their assets under management. Sometimes, funds may have discovered an interesting theme or idea that may offer an opportunity to create wealth.
However, just because the NFO is from your preferred fund house doesn’t mean that you should invest in it. Sure, your beloved fund houses may be managing some great schemes. However, there is no guarantee that the new scheme will also be a great hit. The same logic applies to the argument about your star fund managers. They may or may not replicate the success.
The myth of Rs 10 NAV is something that refuses to die. A scheme with a lower NAV need not be better than schemes with higher NAVs. This belief was prevalent earlier. However, as awareness spread, this mistaken notion died its natural death. However, some new investors still fall for the sales pitch. An existing scheme with a long track record will have a higher NAV because it has already made investments and benefited from those investments. A new scheme, on the other hand, is still starting to invest. That’s why the NAV is Rs 10. It will collect money and then start investing.
So, should you invest in an NFO? It is always better to invest in mutual fund schemes with a long track record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings. Most mutual fund experts say you may consider investing in a new scheme if it offers something unique or new that is not available in the market.Here are the New Fund Offers currently open for your perusal.
Source: ACE MF, Data as on March 21 2023
