Wealth management, PMS (portfolio management services), quant and fintech firms have applied for mutual fund licences. While it is advisable to go with existing schemes that have a long track record, new fund houses may offer innovative products or investment processes.
Here are a few things to keep in mind before deciding to invest with a new fund house.
The first thing to check is whether the firm has any track record of managing investments. For instance, if the firm has managed PMS or alternative investment funds (AIFs), it can offer some insight into its investment capability.
“However, investors should treat such a track-record with caution as managing PMS and AIF portfolios differs from managing mutual funds where daily investor inflows and outflows also need to be managed,” said a distributor, requesting anonymity.
Philosophy matters
A clear investment philosophy is a good starting point.
"Where there is no mutual fund performance track-record, investors should first understand the team behind the fund house, their experience across different market cycles, and their investment philosophy," said Ravi Kumar TV, co-founder of Gaining Ground Investment Services.
“Is the investment philosophy different from what you are currently holding? Therefore, is it worth looking at a new investment style for diversifying your portfolio? Investors must ask these questions when considering a new fund house. Avoid new funds if they only lead to duplications,” said Anup Bhaiya, founder of Money Honey Financial Services.
Process over people
A new fund house can outline an elaborate process at launch, but what matters is whether it sticks to that process once schemes are up and running, especially in actively managed funds.
"Investors should track whether the fund house stays true to its stated investment approach or drifts away from it, and that only becomes clear over a few years," said Amol Joshi, founder of Plan Rupee Investment Services.
A robust, well-defined process matters for another reason: it helps sustain performance even when a fund manager exits, as investment decisions are driven by a framework rather than an individual.
“A strong management team might still be worth considering. Several new fund houses are being launched by mutual fund industry veterans,” Bhaiya said.
“At the same time, the new fund may not necessarily be backed by an industry veteran, but the parent company could be strong enough to attract the best talent within the industry,” he added.
Start small
If investors want to experiment with a new fund house, it is advisable to wait for at least a few quarters—if not longer—to assess the fund’s initial performance.
“Investors who may want to invest in a new fund house's scheme can do so with a small allocation as part of their satellite portfolio and keep a close watch on the fund’s performance vis-a-vis its peers,” Bhaiya said.
A measured approach can help investors benefit from potentially differentiated strategies while limiting the risks that come with backing an untested fund house.