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Should you start betting on new fund offers or NFOs?


Seasoned mutual fund investors might frown reading the headline. After all, every mutual fund investor who cares for his money would know that she can safely ignore NFOs. If so, why are investors choosing NFOs? Have the rules changed?

If you are a seasoned investor wondering about these things, we would not be surprised. Last week
ETMutualFunds carried a story on large inflows into the multi cap category. When we came across the numbers we were wondering if investors suddenly started to love these schemes. Later we found out that the numbers were inflated mainly because of NFOs by some prominent fund houses.

For more, read:
Multi Cap Funds top inflow charts on the back of NFOs

According to mutual fund advisors, some investors clearly fall for the tall claims made by fund houses and distributors. These investors believe the new schemes are perfectly placed to exploit the investing opportunity and offer great returns. Some also include such new schemes when they try to tweak their portfolio in the new year.

Advisors also say investors, especially the new ones, try to get into these schemes because they believe that they missed out a lot in the last year. FOMO or fear of missing out is a major reason why many investors jump into so many unusual choices. Many investors have recently gotten into the ETF bandwagon because of this reason.

Some investors also reiterate their faith in the fund house or fund managers by investing in the new schemes launched by the fund house or managed by the fund managers. They believe that since the fund house or manager has taken care of a scheme better, they would repeat the magic again.

Let us move on to the main point: should you bet on NFOs? Well, the rules remain the same. When it comes to plain vanilla offerings it is always better to stick to schemes with a longer performance record. Also, If you have diversified portfolio, chances are that you have some exposure to the hot sectors or themes that are on offer.

Even if you don’t have exposure to it, ask yourself whether you understand the sector or theme. Also, are you aware of the risks involved? Do not invest in anything you don’t understand or don’t match your risk profile.



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