Here comes a new NFO !!!

In this post we will discuss why one should really be cautious about NFO’s and why in general its better not to invest in an NFO . Have you heard about NFO’s and IPO’s hitting the markets while markets are doing bad ? Why dont we !! ? this is a question we must answer .

The reason why most of the NFO’s and IPO’s hit the markets when markets do extremely good is to exploit the emotional buying of investors . Its a common thing that investors tend to get in in rising markets then falling markets . So when markets are flying high , all kind of NFO’s with fancy names (some good funds and some junk funds) will hit the market claiming how different they are and how they will be successful .

No Proven Track Record
Every NFO will come with its own idea and logic, but investing is never easy and you can see true colors only after few years . They can be success or failure , So why to go for something which can either fail or succeed , Why not go for some existing fund which is already proven its mettle , which has given superb returns over long term , has excellent management . These funds have high probability to continue there performance .

Cheap NAV of Rs 10
Most NFO’s offer comes with NAV of Rs 10 , and the biggest myth of investors is that its a cheap fund and hence better than a fund with NAV of 20 or 100 . NAV growth is nothing but growth of investments and it does not matter what NAV is . Rs 10 NAV mutual funds and Rs 100 NAV mutual fund will grow with same rate if there investment quality is same , there is no reason to invest in low NAV fund .

Myth of High Dividend from Low NAV Fund
Lot of our “Educated” Agents will tell you that buying low NAV fund will help you in getting more Dividend (if you choose Dividend option) , because Dividend is declared on number of Units held . So you will get more units of mutual funds if you invest in low NAV funds , whatever he says is true , but he himself does not know that Its investors money coming back to him and NAV value will again go down by that much value . So in real money terms there is no benefit of dividend option

Does that mean all NFO’s are Bad ?
No , Every existing mutual funds was NFO once upon a time, If you go through the NFO offer prospectus and you find it interesting and logical enough for you to invest in it , then you can go for it . But just understand that only a handful of all NFO’s become good funds , So out of 1000 mutual funds , only a few like 20-30 will be extremely outstanding funds , So the decision is yours , Do you want to take the chance ? Or you want to wait and let it show its true colors before you get into it .