Mutual funds are attracting huge investment interest. In September 2017, Equity funds (including ELSS) witnessed monthly net inflow at Rs. 18,936 crores, a growth of 406% YoY. The net inflowбsignifies the overall sentiment of the mutual fund investors, according to an ICRA report. The huge investor interest is due to the variety of mutual fund offerings which can cater to every investorБs financial goals. Manish Kothari, Head of Mutual Funds, Paisabazaar. comбpoints out someone with a high-risk appetite can invest in a mix of large/mid-cap and multi-cap funds while those with moderate risk appetite can opt for equity-oriented balanced funds. БThose with lower risk appetite may opt for debt funds, debt-oriented balanced funds or dynamic asset allocation funds,Б he added. Moreover, the duration ranges from one day to a lifetime as funds are invested across asset classes like gold, equities, long-term bonds, short-term bonds cash. The schemes are also designed as per the investors risk taking capacity. So what makes mutual funds such an attractive investment avenue? Bhartendra Singh, Head of Product for Investment and Insurance Marketplace, Wishfin has explained the benefits that mutual funds offer to outweigh those offered by conventional investment methods. б Professional Management These funds are managed by experienced qualified fund managers whose job is to take investment decisions based on solid research investment processes. Managing risk is an important consideration while taking investment decisions. Often people do not have the time expertise to carry out research and are not able to put a focused effort to monitor markets economies. On the other hand, a fund managerБs job it is to keep a track of all these variables and churn his portfolio to maximise investor returns. Managing your goals People have different dreams goals and mutual funds can help realise them through a range of different products available. Be it your childБs education, buying a house, retirement planning, and second income generation, creating an emergency corpus, planning a vacation, creating a corpus over a period or just saving money for the short term.
Portfolio Diversification One of the main advantages of mutual funds is that unlike a lot of other investment vehicles, it helps you create a diversified and balanced portfolio. So while some portion of investment can have equity exposure to provide long-term growth, it can also be balanced with fixed income products to manage the risk for providing regular income. Ease of investment monitoring An investor can start with a small amount of Rs 500 per month or a lump sum amount. бThere are online platforms available that will allow them to invest right from their desk. Not only do mutual funds have different modes of investment, they also allow all types of investment amounts by switching funds. It makes the process of accessing the portfolio details, account statements and making systematic investments very easy. One can invest through multiple modes of transaction: SIP (Systematic investment plan) automates the investment over a fixed frequency, One-time Investment in a new fund adding the amount in the same fund, switching from one fund to another fund, systematically withdrawing money from the investments or transferring to other funds. Liquidity Tax Benefits Mutual funds offer high liquidity by allowing redemptions at any time required unless it is invested in a closed-ended fund. In fact, some mutual funds have started offering instant redemptions facility through liquid funds wherein money comes back to the registered bank account instantly. ItБs like keeping the money in a bank account with the potential to earn better returns. Liquid funds can be very good alternatives to fixed deposits. An equity-linked saving scheme (ELSS) is the type of an open-ended diversified equity fund which not only offers tax exemptions under section (u/s) 80C of the Indian Income Tax Act but also gives your money an opportunity to grow.
Regulations and Transparency Mutual fund companies are strongly regulated by SEBI making the entire process of investment very transparent. Mutual fund companies disclose all the details of investment periodically as a part of the regulatory requirement. Investors can take comfort in investing as there is a regulator to protect their interest.
If you are a mutual fund investor, one of the ways to invest is through New Fund Offers or NFOs. б When a mutual fund comes up with a new fund or series of a scheme for subscription, it is termed as New Fund Offer or NFO. Currently, there are 10 New Fund Offers open for subscription. Before The NFOs are catagorised into income scheme, growth scheme and ELSS schemes. You can also take tax benefit by investing in ELSS NFO. However, should you invest in NFOs when there are a multitude of tried and tested funds on offer? Opinion of experts appears to be divided on this issue. Anil Rego Б Founder CEO, Right Horizons told to moneycontrol that for instance, in 2017 so far there have been 30-odd mainboard IPOs. But one-third of them are trading below issue price. On the other hand, most of the equity NFOs launched are doing well. The reason being the judicious portfolio approach taken by fund managers. NFOs may be a new product with no history, but the experienced fund manager and the time-tested portfolio approach ensure that investors\’ interests are always protected irrespective of market conditions. БWith a single stock or security, such an approach cannot be taken and hence it is fraught with risk of money loss,\” he said. New fund offers have the potential to gain momentum significantly once they are being traded through a successful campaigning. These NFO\’s can be open-ended or close-ended that is, under open-ended, you can enter the market and purchase any number of share through mutual fund schemes anytime while under close-ended, the subscription to make an investment is time-bound where the issuance of shares is also limited.
The subscription to any NFO starts with Rs 10, which can also be driving motive for an investor to make the investment and purchase more units. However, you should ideally track all the factors before subscribing to any NFO. Mayank Bhatnagar, COO, FinEdge, however, feels investors need to exercise caution before committing their money to NFOs. БWe fail to find a compelling enough reason for investors to opt for newly launched funds, over funds that have well-established track records of navigating challenging market cycles. Anecdotal evidence tells us that most investors still invest into NFOБs for all the wrong reasons Б topping the list is the fallacious belief that Бa low NAV is cheapБ, and it is, therefore, better to invest into an NFO because it has a net asset value of Rs. 10. As the sad plight of most of the NFOБs launched shortly before the carnage of 2008 will show, this is far from the truth! Some of these NFOБs are still tottering in the red, even a decade later,Б Bhatnagar said. If an NFO fails to collect enough funds, its marketing and distribution costs would be apportioned over a smaller asset base, leading to a higher expense ratio and compromised returns. This risk is more imminent in the case of NFOБs launched by smaller AMCБs that do not have the marketing firepower to reach sizeable swathes of the investing community. БMore equity-oriented NFOБs are launched when markets have already gone up significantly, with the intent of cashing in on buoyant retail investor sentiment more than anything else. This may lead to a poor initial investment experience for uninformed first-timers who were unable to resist the allurement of those colourful billboards! Б says Bhatnagar. He feels the only time an NFOs might be worth considering is if itБs one that explores a completely untouched theme that fits in with your investment portfolio. Considering the plethora of funds already available today, the launch of such an NFO remains quite a remote possibility.