Are New Fund Offers (NFO) really Worth?

Are New Fund Offers (NFO) really Worth?

According to Valueresearconline,

More than 200 NFOs have managed to mobilise Rs 43,251 crore in the past five months. The fund houses launched NFOs across the spectrum, including 14 equity funds, 20 debt funds, 2 gold funds, 15 hybrid funds while fixed maturity plans or FMPs make up the rest.

This shows that Indian people are very much fond of NFOs. Many of my friends simply can’t resist to buy NFOs.

This is because many people think that, NFOs are cheap. This is because they have NAV price of Rs.10 per unit. But well, the returns from mutual funds are purely based on their portfolios. The underlying market is same stretched or shrinked.

Say for Example, if one NFO has nav price of Rs.10 per unit and another 10 years old established fund has NAV of Rs.1000 per unit and if both the funds perform exactly same during that financial year and give 20% returns than the NAV of nfo will be Rs.12 per unit while established fund will be Rs.1200 per unit. Thus your Rs.1 lakh invested in both the funds will be same Rs.1.2 lakhs.

But the problem is that, NFOs don’t have any past record of proven performance. And that’s why you can not say by its name that weather the fund will perform good or bad in the future.

While the funds having a proven past record are more reliable as they have passed through all the phases of market cycle.

So in my opinion, rather than collecting NFOs, you should invest in already established mutual funds having a past record of proven and good performance.