I have heard and read many times Investment experts advising clients to stay away from Mutual Fund NFO's (New Fund Offer). Mostly the reason given to stay away is "performance of a fund cannot be ascertained during NFO". Well I feel this doesn't do down well with me. My points of contention as stated below:
1.) Past performance is not an indicator of future performance. If this is the line we talk about it holds for all schemes of all Mutual Funds including the existing open ended ones. Then Why only NFO's. If nobody can guarantee the performance of existing open ended funds then why should NFO's face the question of performance. There are instances where performing Funds have faltered and mediocre funds or NFO's have excelled.
2.) Look at the attributes of the Fund, risk Profile and Fund Manager: If these points are to be considered and all of them fall in line with the requirements of clients then why should NFO's be avoided. If Fund Manager is the key then why target NFO's just because they are new. With the same Fund manager even performance of existing well performing schemes can't be guaranteed. So if the objective of NFO matches that of client requirements and the Fund manager is good I see no reason why to avoid the NFO's.
3.) Growth Hampered: It is said that competition brings choice for customers and enhances the industry standards. Spreading negative words about NFO's just doesn't support the Industry Growth. NFO's are one major way especially for the new entrants to mobilize some good chunk of money and enhance their product portfolio. Moreover we should not forget that even the existing performing schemes of established AMC's were launched through NFO's way back. Success of NFO's add's up to industry AUM and who know's if there is a star performer fund coming in the form of another NFO.
Agreed at times Fund Objective / Fundamental attributes of an NFO might not prove a good bet with existing economic situations. But then all NFO's cannot be bad. And since performance cannot be predicted for any scheme NFO investments should not be discouraged altogether.
To conclude I would like to say that certainly Fund objectives should be analyzed within the existing scenario and if they fit well and the Fund matches the client requirement, risk profile and horizon NFO investment shouldn't be discouraged. This shall benefit the Fund houses (big / small) and the industry.
1.) Past performance is not an indicator of future performance. If this is the line we talk about it holds for all schemes of all Mutual Funds including the existing open ended ones. Then Why only NFO's. If nobody can guarantee the performance of existing open ended funds then why should NFO's face the question of performance. There are instances where performing Funds have faltered and mediocre funds or NFO's have excelled.
2.) Look at the attributes of the Fund, risk Profile and Fund Manager: If these points are to be considered and all of them fall in line with the requirements of clients then why should NFO's be avoided. If Fund Manager is the key then why target NFO's just because they are new. With the same Fund manager even performance of existing well performing schemes can't be guaranteed. So if the objective of NFO matches that of client requirements and the Fund manager is good I see no reason why to avoid the NFO's.
3.) Growth Hampered: It is said that competition brings choice for customers and enhances the industry standards. Spreading negative words about NFO's just doesn't support the Industry Growth. NFO's are one major way especially for the new entrants to mobilize some good chunk of money and enhance their product portfolio. Moreover we should not forget that even the existing performing schemes of established AMC's were launched through NFO's way back. Success of NFO's add's up to industry AUM and who know's if there is a star performer fund coming in the form of another NFO.
Agreed at times Fund Objective / Fundamental attributes of an NFO might not prove a good bet with existing economic situations. But then all NFO's cannot be bad. And since performance cannot be predicted for any scheme NFO investments should not be discouraged altogether.
To conclude I would like to say that certainly Fund objectives should be analyzed within the existing scenario and if they fit well and the Fund matches the client requirement, risk profile and horizon NFO investment shouldn't be discouraged. This shall benefit the Fund houses (big / small) and the industry.
1 comment:
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