Should you invest in NFOs of Mutual funds?
Voice Over-
Namaskar dosto and welcome back to another very fun and very informative podcast by Angel Broking.
Iss podcast mein we are going to discuss the new fund offer phase of a mutual fund aur saath saath yeh bhi evaluate karenge ki aapko koi benefit hoga ki nahi, by investing during the NFO phase.
Dost jab koi bhi nayi cheez aati hain, everyone gets very excited. For example jab koi new phone launch hota hain, sab kaafi excited hote hain, and some even pre order, without even trying it. People just want the pride of owning that new phone first.
Koi new social media platform launch hone par, everyone gets excited and considers downloading it. Kam se kam yeh free hai unlike the newly launched phone.
Basically new is exciting. Everyone wants to try something new.
NFOs appeal to investors for very similar reasons.
Pehle dekhte hai ki NFOs ke liye investors itna excited kyu hote hai
Investors ka general yakin hai ki since it is new on the market, the fund's units are available at the best ever rate. Zyaada tar NFO ke samey, mutual fund units sirf Rs 10 mein mil jate hai. Lekin NFO period ke baad, units ka bhav badh jata hai - in most cases.
Mutual funds mein stocks ke jaise hi people want to buy the units at a low price and sell at a higher price. Toh obviously lowest se bhi low buy-in price, investor ke liye behtar rehta hai.
Sounds exciting, right?
What are the benefits of investing in an NFO?
Low entry price - As we just discussed, an investor can happily buy 100 units of a mutual fund for as little as Rs 1000. This is just an example of how the price can be low in the beginning, the opposite case is very much possible, isliye we have a disclaimer which reads research before investing.
Quick exit - since the investor is buying at a very low price, in ko jaldi apna target earnings milne ki possibility hai jisse woh jald se jald apna paisa nikaal ke use kar sakte hai ya kisi dusre investment mein dal sakta hai
Yeh toh tempting zaroor lagta hai and unlike an IPO which is held to put shares on the market for the first time, it is a much easier process to buy mutual fund units via NFO.
Key considerations while investing in an NFO:
Yeh Rs 10 entry price dekh ke kisi ko bhi temptation ho sakta hai ki chalo try karte hai; not much to lose. This is not untrue, lekin serious investors hamesha koi bhi investment ka earnings potential evaluate karte hai. Especially because you have no historical data to go by, aapko precautions lena padega, by doing your research.
Type of NFO
NFO 2 kisam ke hote hai: open ended and closed ended. Open ended NFO mein aap apna investment kabhi bhi redeem kar sakte ho. Closed ended NFO mein, lock in period applicable rehta hai. Haan you get to buy in at a preferential lower price lekin 3-5 years ke liye you are stuck irrespective of how the fund performs. Kai logon ke liye yeh lock in beneficial rehta hai kyunki compulsory savings ho jaati hai, lekin others might like to be able to move capital around to make the most of market movements. Depending on your investor personality, ensure that the NFO type is right for you.
AMC
Asset management company or AMC hai woh company jo yeh mutual fund launch kar leta hai aur investor capital ko ikatta kar ke stock market mein invest kar leta hai. Mutual fund already new hai, toh preferably the AMC should not also be new. AMC ka acha reputation rehna chahiye.
Fund Manager
The person who heads the team that looks after a specific mutual fund is called a fund manager. Unka naam fund offer document mein mil jayega. Fund manager ka bhi track record check karna - have they been successful? It may not be any guarantee of future success lekin kam se kam in ke abilities ka koi andaaza/guesstimate toh rahega.
Portfolio of holdings
Mutual fund ka stock investment plans, sectors being invested in, proportion of debt versus equity, yeh sab check karna important hai. You want to know 4 things:
What's new, really?
Kya yeh mutual fund mein new sector ya new strategy hai that somehow gives it a competitive edge?
Risk outlook
Depending on the amount of stocks and the quantity of bonds that the mutual fund is investing in, the mutual fund will be more risky or less risky. Usually a higher amount of equity - that is stocks - corresponds to higher risk. Ussi tarah stocks mein bhi alag alag risk levels hote hai… large cap stocks mein kam risk, small cap stocks mein zyaada risk aur mid cap stocks mein medium risk. Phir kai sectors bhi kam risky hai as compared to others. Investors should always put some time into going through the mutual fund's investment plans.
Diversification
Agar aapke paas already kai mutual fund investments hai toh you need to consider if the NFO mutual fund is offering you exposure to some new sector or is diversifying your portfolio in some other way.
Investment cost
Koi bhi mutual fund investment mein, investor ko expense ratio bharna hota hai which are the fees paid to the fund house for managing your capital.
Pehle NAV mein yeh fees bhi deduct ho jayega toh your unit worth will first show as less than Rs 10. Yeh sirf aapke information ke liye hai taki aapko shock na ho mile.
Expense ratio pe dhyan dena kyunki it can eat into your earnings. Do some quick calculations to set targets in consideration with what you're paying as fees by way of expense ratio.
Aaj ke liye itna hi, remember chahe new fund ho ya existing, mutual funds are subject to market risks. Consider your risk appetite before investing.
This podcast has been made for educational purposes only and the investor must do his own research as well.
Aise aur interesting podcasts sunne ke liye humein follow karein via youtube and other social media channels. Until then goodbye and happy investing!
Investments in the securities markets are subject to market risks. Read all the related documents carefully before investing.
https://www.livemint.com/mutual-fund/mf-news/does-opting-for-a-new-fund-offer-make-sense-11622044702778.html
https://www.indiainfoline.com/mutualfunds/what-is-nfo-all-you-need-to-know-about-new-fund-offer#:~:text=In%20India%2C%20the%20NFO%20price,higher%20than%20the%20NFO%20price.
