The truth about New Fund Offer
Published On 29 Jul 2010 By
admin. Under:
Useful Tips.
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What is a New Fund Offer?
Heard of New Fund Offers? Do you think that investing in a nfo mutual fund is better because its available at a cheap price? Well here is some nfo mutual fund information that might be of help.
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Son – Dad, I will be going to college in another four years. Hope you have started saving for my higher studies.
Father – I have just started, and to get maximum returns i plan to invest in new fund offers.
Son – New fund offers? Why do you feel investing in nfo mutual fund is better?
Father – First, a NFO is available cheap – at just 10 Rs per unit, so we can get more units and hence more profit.
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Myth : NFO means higher returns!!
Most of the people think the same but unfortunately the reality is far from this. Buying a nfo mutual fund at a cheap price in no way guarantees higher returns. Consider this:
You invest Rs 100 each in two funds A & B. A is an established fund with a proven track record with current NAV as 20 Rs while B is a new fund offer with NAV of Rs 10. So now you have 5 units of A and 10 units of B. Assume each of the funds give 20% returns in a year. So your absolute returns is Rs 20 per fund. Hence even though you have lesser units of mutual fund A, you get same returns.
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Risks involved in investing in a New Fund Offer
By investing in a new fund offer you are at risk as you have no idea of how the fund will perform. Also if the fund is being launched by a new AMC, risk is even higher as there is no track record of the performance of the AMC as well.
For some more insight on NFO’s read : Do you need to buy a NFO?
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