Investment School: What to do with MF NFOs?

What to do with MF NFOs?

On an average we saw 2 or 3 NFOs( New Fund Offers) coming up every month last year and the mutual fund agents are there to deceive people by saying that "BY LOWER NAV OF RS.10 U CAN GET MORE NUMBER OF UNITS". Mutual funds are not stocks. THE NAV OF THE FUND DOESNT MATTER. Its the RETURN that matters the most.

Disadvantages of NFOs.

1. You are not sure of the portfolio of the new fund. Only when the fund functions for an year or so , you can get an idea of what kind of stocks does the fund holds.

2. NFOs DONT follow the themes(or) objectives of the fund exactly. Unless there is a unique feature abt the NFO like Gold ETF or RealEstate mutual funds, its not advisable to get into an NFO. Suppose if a theme is a large cap fund, there are n number of good large cap funds already available. So these kind of funds are not very distinct.

3. NFOs are NOT CHEAP. Simply coz the nav is 10 does not mean that NFOs are cheap.

Consider two cases. Suppose if 1,00,000 is invested in two funds for one year.

1. Good track record fund.

NAV - Rs 100
Units - 1000
Return - 50 %

After 1 year, NAV = 150. So market value = 1000*150 = 1,50,000

2. NFO

NAV - Rs 10
Units - 10000
Return - 50 %

After 1 year, NAV =15. So market value = 10000*15 = 1,50,000

As you can see , the NAV doesnt matter, the rate of return matters the most and also the

Probability of existing fund performing better >>> Probablity of NFO performing better and the investor can trust the existing fund keeping in mind its past performance.

DISCLAIMER : The past performance may or may not repeat, but as Sachin in the team gives the indian team psychological strength, a good performing fund in your portfolio will make ur life more secure than an NFO.

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