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Wysłany: Nie 1:01, 25 Sie 2013 Temat postu: Invest in NFOs with caution-spun1 |
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Invest in NFOs with caution
Purchasing NFOs takes a higher level of due diligence than purchasing existing funds. Investors tend to buy units in new funds because they are allotted in a Rs 10, through which they will get more number of units. According to their reasoning,[link widoczny dla zalogowanych], this can help generate higher returns than an existing fund, which may came having a higher NAV/unit tag. NAV is simply the net asset value per unit of the fund or,[link widoczny dla zalogowanych], quite simply, the marketplace value of the portfolio divided through the quantity of units. Therefore, during NFOs, the fund house only pegs a brand new scheme's market price at Rs 10 per unit. What really should hold investment appeal is the potential of the underlying portfolio to deliver returns; the NAV is a mere reflection of performance.
Let's say you invested Rs 1,[link widoczny dla zalogowanych],000 in two funds; Fund A with an NAV of Rs 100 as well as an NFO Fund B by having an NAV of Rs 10. You're going to get 10 units of A and 100 units of B. If the underlying portfolio goes up by 20 per cent for both these funds,[link widoczny dla zalogowanych], the Rs 1,000 invested becomes Rs 1,200 every time. It doesn't really matter if fund A has an NAV of Rs 120,[link widoczny dla zalogowanych], while fund B comes with an NAV of Rs 12 following the 20 per cent upswing. The returns you are in position to make are the same.
So,[link widoczny dla zalogowanych], it doesn't matter whether you buy a few units of the existing fund having a higher NAV or get more units in an NFO since no fund could be deemed cheaper compared to other based on NAVs! But NFOs should be given caution. Typically, they are launched during bull markets; sometimes a clutch of fund houses wind up launching schemes simultaneously, contributing to investor confusion. There've also been new fund houses jumping into the fray, with a few lacking long enough a track record in managing mutual funds. While new fund houses replace with this by tying up with an overseas player, the reality is that the new asset management companies (AMCs) are inexperienced another danger to be considered is if the talk' of recent fund offers lures you.
First,[link widoczny dla zalogowanych], most NFOs launched need a lumpsum investment. Which means that a bigger amount is offer risk. The systematic investment plan is provided by very few of these, which, while subjecting an investment towards the same risk,[link widoczny dla zalogowanych], at least allows averaging costs on the fluctuating market cycle. Second, NFOs don't have a history, the performance yardstick for existing funds. It is critical that you simply put your hard earned money in funds by having an n established record. A fund's performance over one-,[link widoczny dla zalogowanych], three-, and five-year periods must be considered before a good investment decision is created,[link widoczny dla zalogowanych], as over such a period only can the fund's capability to deliver superior returns over different market cycles involves light. You could look at an NFO when you feel it offers something drastically new in terms of sectors and stocks it invests in or geographical exposure or investing strategy.
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