Buy an NFO if it offers something different and fits your portfolio

Buy an NFO if it offers something different and fits your portfolio

Is it better to buy during the new fund offer (NFO) period or wait till the fund proves itself in the market? —Ravinder Jaggi

When it comes to NFOs, they should meet two conditions to merit a place in an investor’s portfolio. One, the NFO should be distinctly different and/or more promising than any comparable offering in the market. For example, some recent NFOs offered interesting combinations of gold, debt, and equity that were hitherto not available in the market. Or, the NFO has a fund manager, who has a stellar reputation of managing another top performing fund. Two, the NFO should be suitable for an investor’s portfolio. If the portfolio is overweight on, say, large-caps and if she wishes to diversify into the mid-caps, a promising NFO in that segment managed by a reputed manager would be a good fit. If these conditions are not met, you should avoid NFOs. You can always get into the scheme at a later date if it proves to be promising.

I have around 32 mutual funds (MFs) and I would like to reduce the number and consolidate them. At present, I have monthly systematic investment plans (SIPs) of Rs2,000 each in HDFC Equity and Top 200, IDFC Premier Equity A Gr. I also have a monthly SIP of Rs1,500 in Reliance Equity Opportunities Fund. Should I continue these? —Ramesh Babu

It is good that you recognize the need to trim your portfolio size to make it manageable. To identify the schemes to keep in your portfolio, first gather the three- and five-year performance data for all the schemes and the corresponding data for the peer schemes and the respective benchmark indices. You will most likely find that only a few schemes in your portfolio beat their benchmark index over these periods. If youstill have too many schemes, rank them by how they performed against their peers and choose the top schemes. Your SIPs are well-rated schemes with a good track record. You can continue them.

I wanted to invest for my newborn baby. I have about Rs20,000 and would like to buy MFs that give good returns over five years or so. Suggest some good funds. Since the market is high, is it the right time to buy MFs? —Vijay A

The best way to avoid the uncertainty about whether or not it is to average your entry into the market. Invest Rs20,000 through a monthly SIP of Rs2,000 into HDFC Equity Fund Gr. Better yet, you can put your money in a liquid fund from the same fund house (HDFC Cash Management Treasury Scheme is a good option) and set up a systematic transfer plan for the amount every month. Also, if you can, you should consider adding a little more to your investment on an annual basis— you can use your son’s birthday as a reminder for this purpose.