Beware of NFOs

1.Before you invest in an NFO, Study and understand the theme of the NFO.

2.Try to understand whether the offering is really new in the market or from the fund.

3.Check out the performance of similar funds (theme), the fund house and the fund manager.

4. Understand whether it is a closed ended or open-ended fund.

5. Most importantly you should know whether the fund suits your financial goal and plan.

6. DO NOT invest only for the reason an agent pushes a new fund (in most of the cases, they are paid more commission for new ones).

7. The expense ratio is going to be more for a new fund. Beware of expense ratio in close-ended equity funds.

(As per Sebi’s guideline, AMCs are not allowed to pass on the issue expenses that have been incurred during the time of floating open-ended scheme. While in case of close-ended scheme, AMCs are allowed to pass on such expenses.)

8. Do not go in for a NFO because you get units @ Rs. 10 NAV (NAV has little relevance to your investment decision).

An analysis of performance of New Funds (of last couple of years) shows not even handfuls have performed better than existing funds. So, better invest in existing funds than NFOs unless the new offering is so SPECIAL.

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