Investment Blog

🔊 Play Audio

The category of Equity MFs with the highest inflows in the last one year is NOT Small Cap Funds.

The money flown into Sectoral/Thematic funds (INR 70,072 crores) topped the charts and is even higher than individual categories of large, mid & small cap put together!

New Fund Offerings (NFOs) have contributed significantly to this trend. A trend by the way which poses risks to the investors they are not even fully aware of.

We recently met a prospective client who happily showed us how he bought several popular NFOs at an NAV of ‘just’ Rs 10! Is a smaller NAV equal to a cheaper NAV? Certainly not. The relative growth in the NAV (e.g. 10% or 20%) henceforth is what truly matters.

The other issue with NFOs is the entry timing is popularized with the sectors and themes in vogue. After the initial euphoria, investors ponder about the exit strategy and seek genuine advice.

The other extremely common notion is placing NFOs at par with IPOs given the buzz created around the potential fancy returns during the launch time. A great misconception again. At least we know the underlying security in the IPO which isn’t the case with NFOs. Only broad mandate is known and the exact portfolio constituents are selected and included later on.

With added factors like lack of track record and higher costs due to higher expense ratios, it can be seen that new scheme offerings are marred with challenges. It is more prudent to wait and observe the new fund’s performance. Still, if an NFO is looking really interesting, spend sufficient time researching all aspects rather than adding on an ad-hoc basis.

Originally posted on LinkedIn: www.linkedin.com/shivanichopra

Email us at connect@truemindcapital.com or call us at 9999505324.