Three things investors must consider while investing in NFO

Arnav PandyaNew funds are always a lure for the retail investor because they promise a new start and the investor feels that they are getting an opportunity to invest right from the base. However the figure of the Net Asset Value (NAV) has little meaning in terms of what its potential is because this is not a stock and hence the accumulated value does not show what has already been factored into the valuation. There is still a need to be focused on the portfolio because this is the most crucial aspect that is going to determine the kind of show that the fund puts up. Here is a detailed look at the issue and how investors need to consider this point.No portfolioOne of the first things that an investor will notice when they go in for a new fund is that there is no portfolio of the fund. Normally the investor would look at the portfolio of the fund to see the kind of holdings that are present and the manner in which these are being managed to see the kind of potential that the fund holds. However in case of a new fund since there is no money that has been collected yet there is no question of investing any funds and constructing a portfolio. This means on the most important issue of where the corpus of the fund is invested there is nothing yet to show for the investor. Now it could be quite some time before the entire money of the fund would be invested so this is one additional risk that can arise for the investor as till the time that the money is entirely deployed there is no idea of what the actual portfolio of the fund will look like. There is also a risk in case the fund acts hastily and quickly deploys all the money that has been collected because this could open it to the risk that sharp market movements after that would affect the fund and this could lead to an immediate hit from which the fund could take a lot of time to emerge. This means that the absence of a portfolio has its own risks which need to be considered.IntentionThere is the intention of the fund and its fund manager to construct a portfolio in a certain manner which has specific characteristics. This is an intention at the stage of the new fund offer and the final position might not be what the investor had expected. As against this when it comes to an existing fund the investor is clearly able to see the kind of portfolio that is present and also the manner in which the changes have been made to it under different market conditions. This gives an idea as to what the fund would do when faced with a specific condition. In most cases an actual action should be more confidence building as compared to mere intention.Economic cycleFor an investor to build wealth there is a need to ensure that they ride out an entire economic cycle and then see how their investments have performed. With a new fund this could take a lot of time and it would also lead to a new kind of uncertainty because the investor will not know how the fund emerges from this situation at the end of the whole process. This thus has an additional amount of risk in the form of not being sure of what the fund will end up doing and its results and hence needs to be taken into consideration as the investment is being planned.