General Information

NFO (New Fund Offer) is a Trap. More and more Mutual Funds are launching NFOs daily. The market is full of NFOs. But wait…. It’s a Trap. The Mutual Fund Companies market their New Fund schemes by telling people that it is cheap because the NAV (Net Asset Value) of these new funds is just Rs.10 per Unit. Most of the small Investors are NFO Lovers. They think that NFOs are cheap and that’s why they keep buying more and more new schemes. Every time any mutual fund launches a new scheme, they simply buy it and add it in to their portfolios thinking that it is a cheap.

But it is not so. Even though NFOs are selling at Rs.10 per Unit, they are not cheap because the underlying market is stretched. Over the time, these people don’t remain Mutual Fund Investors anymore but they become Collectors of NFOs. And their Portfolios don’t remain portfolios any more but it becomes their Collection.

Let me explain you why this is a Trap. Why NAV of Rs.10 per Unit is not cheap? Say for Example, if you have invested the same amount of money in two mutual funds. One Mutual Fund has NAV of Rs.100 and the other has Rs.10 per Unit. Now suppose after one year, both the mutual funds generate 20% return than the NAV of first mutual fund will become Rs.120 and that of second fund will become Rs.12 per unit. So in the terms of percentage, your money will appreciate the same. So if you have invested Rs.10,000 in each mutual funds than after 1 year, The value of Money invested in both the mutual funds will be Rs.12,000. So your ultimate return does not have anything to do with Mutual Fund NAV. Low NAV is not necessarily cheap. What we buy in Mutual Funds is its Management.

So ask yourself that, weather you are an Investor or a Collector? Review your portfolio and ask yourself that weather this is a Portfolio or a Collection?

You have to understand the fact that, collecting so many NFOs won’t help you to achieve your Financial Goals. In fact, it will reduce your over all portfolio return. If you are in a NFO Trap than you are going no where Financially. Try to understand the fact that, collecting so many NFOs won’t help you to achieve Financial Freedom.

Now you must be thinking that, “Ohh… God..I am in NFO Trap. Now What to do?” Well, Don’t worry. You are not alone. There are literally millions of people like you in the world who are trapped in this Trap. In fact only 2-5 out of 1000 people make perfect Mutual Funds Investment decisions.

Don’t worry. I will teach you how to escape from the NFO Trap and stay away from it.

Well, see. You have to understand the fact that, Investment is 10% Maths and 90% Behavioral Control. What we look in any mutual fund scheme is it past record of proven performance. The past record of performance shows that how effective the fund management team is in managing your money. Unfortunately, NFOs don’t have any past record of performance. So don’t see at NFOs. Always ask for past performance.

If you already fall into this trap and became a NFO Collector rather than an Investor than reshuffle your portfolio. Keep in mind exit loads while reshuffling your portfolio. Remember, an ideal portfolio should have 2-3 core funds, 1 or maximum 2 thematic funds and at least one tax saving fund. Exit from all of those funds in your portfolio which don’t have a proven past record of at least 5 years. In short, the ideal portfolio should have 3-5 mutual funds only to meet all of your financial goals in the long run.