K Aravind
Many investors who choose to invest in new fund offerings (NFOs) of mutual funds are subject to some misconceptions. One of them is that new fund offers are less expensive or cheap.
The unit price (face value) of the New Fund Offers is Rs. 10. Investors misunderstand that new fund offers are cheaper than funds priced at Rs 50 and Rs 100 per unit.
The base price of all New Fund Offer unit is Rs.10. All funds enter the market with a face value of Rs. 10 / with New Fund Offers. But this pricing has nothing to do with the quality of the fund.
It is not possible to evaluate a New Fund Offer as one would when a stock is marketed with an initial public offering (IPO) on the basis of the issue price. There is a core difference between an IPO and an NFO. The stock price is evaluated and the issue price is determined based on the previous history and financial position of a company that come up with the initial public offer,. But new funds cannot be valued or evaluated in this way. They are brand new in every sense of the word. The performance history of the fund starts from the day it is listed.
Investors need to consider a few things when choosing new funds for investment. When choosing to invest in a fund, the performance stability and performance of the fund should be taken into consideration. No such assessment is possible in the case of new funds. What can be done is to look at the asset management company’s asset status and the fund manager’s operating history of the new fund. But just because not all funds managed by a fund manager are successful does not mean that the future performance of a fund can be assessed solely on the basis of the fund manager’s track record. Similarly, an asset management company that handles funds with a high rating and good performance history is not guaranteed to maintain that level in new funds.
Instead of opting for new fund offers just because the unit has a face value of only Rs.10 per unit, it is advisable to invest in existing high quality funds that excel in performance stability and performance. At the same time, those who want to invest in different themes and choose schemes that are not currently available in the market can invest in such NFOs.
