Within the final 6 months, now we have seen a number of NFOs from mutual fund firms. The NFO collections have been fairly promising, indicating the acceptance of mutual funds as a most well-liked automobile to park cash by retail buyers.

New Fund Presents (NFOs) are primarily launched when the markets have proven good returns within the final 6 months to 1 12 months they usually do hardly are available in bear markets. Within the first quarter of March 2020, there have been hardly any NFOs as fairness markets have been down greater than 25%.

Understanding the necessity for a brand new theme/sector within the portfolio requires cautious analysis of the brand new funds goal. Many of the new funds are simply filling gaps within the Fund Home Product basket and will be virtually irrelevant to a mutual fund retail investor.

If you’re contemplating to go for an NFO, the next factors must be thought of:

1) Observe Report of Fund Home – NFOs shouldn’t have any monitor document however the fund administration group has a monitor document of managing a number of themes within the earlier roles. The fund supervisor’s monitor document offers the buyers some thought of how have they fared throughout bear markets and bull markets.

2) Previous Wine in New Bottle – A whole lot of new funds are simply the identical thought however with a brand new fund home, which already exists within the portfolio. If you have already got a Giant Cap fund in your portfolio which is doing effectively, you wouldn’t like to have a look at one other large-cap fund with the same fund goal. It will solely add extra funds with out including any diversification to the portfolio. Many of the shares shall be overlapping with the present large-cap fund.

3) Sector Funds – Not too long ago now we have seen a number of Banking and Monetary Companies Funds being launched by fund homes primarily specializing in just one sector of the financial system. The draw back to this technique is that the fund will do effectively solely when this sector does effectively. Having no more than 5% allocation to a sector fund is advisable in a fund portfolio.

4) Worldwide Funds – There are a number of Worldwide Fund NFOs specializing in totally different geographies internationally. These funds add forex diversification and in addition nation diversification. A whole lot of buyers get swayed by the previous efficiency of those funds which have accomplished effectively in particular timeframes with out understanding the forex danger and nature of the international market. It’s advisable to not overdo the allocation to those funds and maintain it beneath 10% of the general portfolio.

New Fund Presents are alternatives to have a look at your funding portfolio and ask the query that do you want a brand new theme in your portfolio. Likely the reply is No. Don’t fall for the aggressive gross sales efforts of mutual fund firms. Talk about along with your monetary advisor earlier than including a brand new fund to the portfolio.

(By Abhishek Gupta, Accomplice, Moat Wealth)

Disclaimer: There are the private views of the writer