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CHECK THESE FACTORS BEFORE MAKING INVESTMENT DECISIONS
SIX new fund offerings from mutual funds are in the market to mop funds before the ban of entry load comes into effect from August 1, 2009. There is a chance that investors will come under pressure from distributors trying to sell a 'last opportunity' to invest. Here are some factors to be considered before making a last-minute investment decision.
WHAT IS NEW?
A new fund should be considered only if it fulfils investment needs unattended by existing schemes. If it is a 'me too' offer, a fund with a track record is a safer bet than a new fund offer. Some new fund offers that are open now, have investment objectives similar to existing schemes. For example, Franklin Build India Fund intends to invest in equities of companies in infrastructure and related activities. There are many infrastructure funds available in market with up to a two-year track record. Kotak Select Focus fund intends to invest in equities of companies of a few selected sectors. There are some schemes with a more than five-year track record that have a similar mandate. Same is the case with Canara Robeco FORCE fund that aims to invest in equities of finance, retail and entertainment sectors. Barring DSP Blackrock World Energy Fund, that invests in feeder funds, investing in energy assets across the globe have no strong differentiator.
IS IT IN SYNC WITH MY FINANCIAL GOALS?
Don't get carried away by claims that the fund's theme is the latest 'in' thing or by distributor talk about the 'runaway market' in near future. If the scheme objective does not cater to your financial objectives, don't invest. For a 55 year old investor with a good asset base to fall back on, it makes little sense to opt for a thematic offering over a low cost index fund.
THE PRICE
Despite warnings at regular intervals, investors get swayed by the Rs 10 price tag. An 'at par' offering does not make the NFO cheaper compared to any other existing scheme with a price tag of Rs 100. Rather, the three-digit price tags in Indian markets speak track record. New schemes and the old schemes enjoy equal opportunity to make or lose money in the market.
COSTS
Investors must take into account the costs associated with the NFOs. In most cases, there is an entry load of 2.25%. Some schemes though are available at par value, come with an exit load. Franklin Build India Fund, Kotak Select Focus Fund and Canara Robeco FORCE Fund charge 1% exit load if the investments are redeemed before 1 year from the date of investing. DSP Blackrock World Energy Fund and JPMorgan JF Greater China Equity Offshore Fund, both have an exit load of 1% for redemption before six months from the date of investing.