NFO [New Fund Offer] is always deemed as a risk. Everyone advises you to go for an existing MF, rather than invest in a NFO. One of the reasons being that, the existing funds have performance and past results to go by. But in case of NFO, its a big risk.
But then, investment itself is a risk. Even MFs can turn non-profitable if fund managers don’t do their job well. The kind of analysis we do before buying a MF, we can do a similar analysis of the AMC before investing in the NFO.
I have invested in quite a few NFOs, based on the past performance of the AMC who have managed successful MFs. Also, the asset allocation makes a difference too. As in the case of Sundaram Equity Plus fund where 35% was allocated to gold and rest 65% to equity. That made it an interesting assortment and I leapt towards that NFO. It perfromed pretty well and even touched a high of 11.02, which was a real positive.
Another NFO which turned out well for me was SBI Bluechip Fund [D]. It oaid great dividends in its first few years before the slow down. But then I burnt my finger in SBI PSU Fund.
Another point to note is the timing of the NFO. When you invest in a NFO while the market is bearish, then you will earn profits during bull run. But when you invest in a NFO which is launched during a bull run, taking advantage of rising sensex, then its a sham. It takes away the hard earned money as soon as the bull run dies down. This happened to me with Reliance Small Cap Fund [G]. I got the timing totally wrong.
Anyways, that has not deterred me. Just a few days back I went ahead and invested in two more NFOs. One was the IDBI India Top 100 Equity Fund and the other was Taurus Banking & Financial Services Fund.
The simple reason for this step was to take advantage of the situation where banking stocks have been beaten down and with falling sensex I can look to gain during a bull run. I could have also go in for a Banking Fund from any of the AMCs, but the NAV was quite high. For each unit purchased from existing MF, I can have 5 units here. And then, the %gain would be more or less the same, if they invest in similar banking stocks.
All I can say is, do not stay away from NFOs. The NFOs give us a chance to enter the market at a lower cost and more number of units. But do check on the market status since timing is everything.
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