Sep 23, 2006 05:19 PM IST

New Fund Offer: Things to note before you invest

As an investor, you often confront this dilemma as to where to invest. The dilemma gets confounded by the fact that there are a slew of offerings from different mutual fund houses. So what to do? Amar Pandit tells some dos and don’ts to follow while taking your important investment decisions.

Most of us like to try out new things whether its dining at restaurants, buying mobile phones and cars to name a few. Some go to the extent of changing mobile phones every 1 year and a car every 3 years. Well this is a matter of personal preference and lifestyle and might give you some kind of emotional happiness which is good in some sense.

But when it comes to most new funds, there is hardly anything different, unique or really NEW about it. It's just that the name gets more exotic, dressing gets much better or a new marketing ploy such as Invest in India's Growth potential as if other options available are not investing in India's growth potential. (Also read - Have a Dravid and a Dhoni in your portfolio)

To put it simply most of the new fund offers are Old Wine in a New Bottle. They are packaged very smartly with fancy marketing ideas to entice the client to buy. There was a deluge of New Fund Offers in 2005 and early part of 2006.

SEBI on its part took a series of steps. Firstly, SEBI objected against the use of the word IPO and instead had every fund house use NFO (New Fund Offer), to confuse with Stock IPOs, to curb rampant mis-selling of new funds.

Secondly, SEBI had Mutual Funds launching open-ended New Funds charge the initial issue expenses within the entry load itself whereas close ended funds could still charge 6% initial issue expense. (Also read - Invest, but choose the right mutual fund)

This is precisely one of the reasons why most of the mutual funds have been launching closed ended New Fund Offers so they could pay a higher brokerage of around 5 to 6% to distributors.

Thirdly, SEBI has taken note of this deluge of similar funds being launched and made it mandatory for the trustees of Mutual Funds to personally certify that their new schemes are different from the old ones. Despite this some of the fund houses have been launching me too schemes.

Some fund houses such as DSP Merrill Lynch have not launched any new offering in the last 12-15 months, except for the Super SIP (which was a genuine attempt to offer something new that was relevant), whereas others such as Tata Mutual Fund and SBI Mutual Fund have been strong contenders for the Top Slot in the New Fund Euphoria.

So the question boils down to

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