Among the large fund houses offering diversified schemes are Mirae Asset Flexicap Fund, BOI Multicap fund, SBI Dividend Yield fund and Navi ELSS Tax Saver Nifty 50 Index Fund. Those offering thematic funds are HDFC MNC Fund, Kotak Banking and Financial Services Fund, and Axis Business Cycle Fund.
“Competition is increasing and the larger fund houses want to have a presence in every category. They are also banking on clients who are satisfied with the performance of their earlier products to allocate more money to them in new products,” said Harshad Chetanwala, cofounder of MyGrowthWealth. For example, Mirae was missing in the flexicap category and is now offering an NFO there.
Fund houses resort to high-decibel marketing and advertising in NFOs to attract investors, but financial planners believe investors should not be carried away. Investors should always look for existing schemes with a track record and prefer it to an NFO and opt for one only if there is a differentiated offering.
“Evaluate your portfolio and if there is a gap and need for a product which an NFO offers with a good fund manager pedigree, investors should consider it,” said Vijay Kuppa, CEO, InCred Money.
Finally, investors should be wary of distributors pushing NFOs aggressively because they can earn a higher commission compared to an old scheme with higher assets. For example, a scheme which has assets of more than ₹10,000 crore can have a 1.5% expense ratio – the charges that mutual funds collect from unitholders annually. However, a scheme with ₹500 crore AUM can have a 2.25% expense ratio, which means a distributor can earn a higher commission in a new fund offer as it has low assets.
