New fund presents, or NFOs, are the flavour of the season. That may very well be the rationale why asset administration firms (AMCs) have launched 16 NFOs lately.
The rush by fund homes to launch new schemes comes after the markets regulator, Securities and Exchange Board of India (Sebi), set 1 July because the deadline for the implementation of a brand new system. It had in April banned the launch of NFOs till the brand new programs have been in place.
Before the ban, Indian asset administration firms had raised a complete of ₹21,464 crore from 57 schemes, in keeping with knowledge out there with business physique Association of Mutual Funds of India (Amfi).
The schemes on provide at present consists of two open-ended exchange-traded funds (ETFs) launched by HDFC Mutual Fund on Monday.
According to the fund home, the benchmark of HDFC Nifty Next 50 ETF– Nifty Next 50 Total Returns Index (TRI) presents diversification advantages at each inventory and sector stage. Additionally, the benchmark of HDFC Nifty 100 ETF–Nifty 100 TRI presents publicity to the Indian large-cap area by specializing in prime 100 firms primarily based on full market capitalization.
ICICI Prudential Mutual Fund has launched Nifty 200 Momentum 30 Index Fund and Nifty 200 Momentum 30 ETF. The Nifty200 Momentum 30 Index constitutes of 30 firms chosen from the Nifty 200 index primarily based on their normalized momentum rating.
Among different schemes on provide are two flexi-cap funds by Baroda BNP Paribas Mutual Fund and WhiteOak Capital Mutual Fund and a balanced benefit fund by Mirae Asset Mutual Fund.
Typically, fund homes launch a brand new fund to fill in a niche in one of many classes or launch a thematic fund when a selected sector or theme is doing nicely. An NFO is considerably like an organization’s preliminary public provide (IPO). An AMC points recent fund models for investing primarily based on a selected theme, which may very well be large-cap, mid-cap, worldwide equities and even bonds.
Many new buyers available in the market have an affinity for NFOs—they assume that investing in NFOs is cheaper as these can provide higher worth than current funds. Besides, a brand new fund is accessible on the value of simply ₹10, which is its internet asset worth. However, specialists say it is a flawed funding technique.
“The largest fantasy about an NFO is that it’s low-cost. As an investor, it’s important to have a look at the worth and valuations at which the fund home is investing within the present market,” said Rushabh Desai, founder of Rupee With Rushabh Investment Services.
Investors should also keep in mind that launching a new fund incurs a lot of expenses. A fund house often invests heavily in promotion and marketing of the new scheme and these expenses are ultimately passed on to the investor. These factors could actually make a new fund more expensive compared to an existing one.
Experts also suggest that, for funds based on themes such as flexi-cap, large-cap or small-cap, investors should stick with existing outperforming and consistent funds that are already in the market for at least three to five years and above. This allows investors to gauge the track record of a scheme.
Desai says he will recommend a new NFO only after a deep analysis. “For example, if there is an NFO with a unique theme, philosophy and reliable back-tested data, and if it fits in one’s portfolio, only then will I recommend it.”
“Investors ought to keep on with their asset allocation,” he mentioned.
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