Before buying a new fund offer (NFO), you should ask certain questions around it.
What’s new? Look at the NFO’s objective or where it wants to invest. Is it offering anything different or some existing schemes already have the same investment goals? Unless the NFO offers a unique investment idea, existing schemes that come with a proven track record are a safer option.
Is there a lock-in? A closed-end scheme locks your money for typically three, five or 10 years. Though they are listed on stock exchanges to offer an exit window, premature exit comes at a cost, as the market price on the stock exchanges is mostly lower than the net asset value.
What’s the fund house’s pedigree? A new scheme or an idea may sound exciting, but if the fund house lacks a pedigree, you are better off without it. Good pedigreed fund houses have processes in place to ensure that unexpected events, such as a market crash or a fund manager quitting, do not affect the schemes much.
Do you have enough already? Don’t invest in an NFO if you don’t need one even if it’s a fantastic investment idea. We would advise a portfolio of around 10 schemes. New additions may just clutter your portfolio due to which even a significant gain in either of them has a limited effect.