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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 doníts 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 ďHow does then one decide if the New Fund Offer of the so many being launched every other month is suitable for meĒ.
Before answering this question, first 3 Common Mistakes all investor should be aware of:
(a) Too less or Too many arenít good enough
After all the one of the reasons you opt for a mutual fund is to diversify your investments but having all large cap funds in your portfolio is unlikely to do any good.
At best based on the size of your portfolio, spread your investments across in 4-9 different funds spread across different Mutual Funds, fund managers, investing styles, expense ratios, portfolio turnover, market capitalization and whether its an all equity, balanced, or tax planning fund. Give Sectoral funds a complete miss unless you are very bullish on the sector and understand the risks well.
(b) Rs. 10 NAV is not cheaper than Rs.100 NAV
(c) Donít fall for fancy terms
If there are, opt for the tried and tested ones rather than going from newer exotic ones.
How to decide if the New Fund is an appropriate one for you?
We can arrive at the conclusion that indeed existing funds have surpassed newer ones by a mile and we would be much better off sticking to existing funds with excellent track records than running after fancy terms, names & themes.
In true Munnabhai style ď, OLD bole tho GOLDĒ.
- Amar Pandit
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READ MORE ON new fund offers, SEBI, IPO, NFO, Mutual Funds, Open-ended, close ended, initial issue expense, brokerage, DSP Merrill Lynch , Super SIP, Tata Mutual Fund , SBI Mutual Fund, investor, diversification, portfolio, fund managers, Sectoral funds, NAV, Options, Derivatives, Amar Pandit
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