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Home > Business > Business Headline > Personal Finance

Buying NFOs? A few tips

March 13, 2007 09:11 IST

We maintain that unless NFOs offer something out of the ordinary (which itself seems out of the ordinary given the quality of NFOs on offer!), there is no compelling reason to invest in them and investors are better off opting for existing mutual funds with established track records over the long-term.

As and when the NFOs prove their mettle over the long-term (at least 3 years in the case of equity-oriented funds), they can become candidates for investment.

Over the past couple of weeks, you would have noticed the rush of NFO reviews on Personalfn. One such NFO review of a leading private sector mutual fund, elicited a query from the PR (public relations) agency of the fund house.

The PR firm wanted to know why Personalfn did not recommend that investors opt for the NFO. They were of the view that if all investors adopted our rationale of opting only for existing, well-established mutual funds, then NFOs would never take off.

In our view, the individual is an investor, not a guinea pig for a fund house to test its NFO. If fund houses are concerned about their NFOs not garnering monies because investors are opting for existing funds, then maybe they should consider convincing their fund managers to invest in the NFOs.

After all, the fund house in collusion with the fund management team launches NFOs, so the fund management team is obviously convinced about the NFO theme (if they aren't, then why did they launch it?).

So if the fund house is concerned that their NFO may not prove to be very popular with investors, then they should urge the fund management team to cough up some money. And the fund management team's investment amount must be highlighted in the Offer Document along with a minimum lock-in period (so that this money is not withdrawn within a few days of the NFO launch).

Maybe if individuals see this amount they will feel less like guinea pigs and more like investors and invest in the NFO in the belief that it will be managed well since its also the fund management team's money on the line.

This week saw the stock markets see-sawing virtually on a daily basis as the gains posted on one day disappeared the next day. The BSE Sensex shed 0.01 per cent to close at 12,885 points, while the S&P CNX Nifty ended at 3,718 points (down by 0.24 per cent). Mid cap stocks were on the receiving end; the CNX Midcap fell by 3.90 per cent to close at 4,656 points.

Equity funds: Biggest Losers

Equity FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
JM Emerging Leaders9.20 -6.12%-18.51%-9.63%-21.50%8.05%-0.08%
ABN AMRO Future Leaders8.92 -6.07%-18.56%5.75%-12.25%-0.10%
JM Auto Sector19.63 -6.03%-17.56%3.86%0.20%8.05%0.20%
Tauras Discovery Stock 14.01 -5.21%-18.88%5.58%-3.18%11.41%0.15%
DBS Chola Mid Cap23.64 -4.87%-15.27%5.63%1.58%7.99%0.23%

(Source: Credence Analytics. NAV data as on March 09, 2007. Growth over 1-Yr is compounded annualised)
(The Sharpe Ratio is a measure of the returns offered by the fund vis-�-vis those offered by a risk-free instrument) (Standard deviation highlights the element of risk associated with the fund.)

Mid cap funds featured prominently in this week's top losers' list. JM Emerging Leaders (-6.12 per cent) "topped" the list followed by ABN AMRO Future Leaders (-6.07 per cent). A sector fund from JM Financial Mutual Fund i.e. JM Auto Sector (-6.03 per cent) occupied the third position.

Leading open-ended long-term debt funds
Debt FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
Birla Dynamic Bond 11.380.26%0.23%2.92%6.12%0.15%-0.61%
Birla Sun Life Income 25.760.21%0.06%3.92%7.92%0.39%-0.20%
Templeton GSec 13.930.17%0.34%2.79%5.04%0.17%-0.78%
Grindlays Float 11.520.17%0.63%3.32%6.16%0.09%-1.09%
LIC GSec 18.880.16%0.08%1.97%4.78%0.51%-0.43%
(Source: Credence Analytics. NAV data as on March 09, 2007. Growth over 1-Yr is compounded annualised)

The 10-Yr 8.07 per cent GOI yield closed at 7.99 per cent (March 09, 2007), 4 basis points above the previous weekly close. Bond prices and yields are inversely related, with rising yields translating into lower bond prices and net asset values (NAVs) for debt fund investors.

Funds from Birla Sun Life Mutual Fund dominated proceedings in the in the long-term debt funds segment. Birla Dynamic Bond (0.26 per cent) and Birla Sun Life Income (0.21 per cent) came in at first and second positions respectively. Templeton GSec (0.17 per cent) and Grindlays Float (0.17 per cent) also featured in the list.

Leading open-ended balanced funds
Balanced FundsNAV (Rs)1-Wk1-Mth6-Mth1-YrSDSR
UTI Variable Investment 15.750.08%-6.27%1.37%4.51%2.62%0.19%
FT India Balanced 31.56-0.39%-8.57%9.38%16.13%5.69%0.30%
ING Vysya Balanced17.66-0.39%-6.95%9.42%9.55%5.96%0.23%
Magnum Balanced 24.38-0.89%-8.83%8.89%11.48%7.26%0.39%
PruICICI Balanced 32.82-0.91%-9.29%8.10%11.48%5.73%0.30%
(Source: Credence Analytics. NAV data as on March 09, 2007. Growth over 1-Yr is compounded annualised)

The turbulence in the equity markets had its impact on the balanced funds segment as well. UTI Variable Investment (0.08 per cent) was the only fund from the balanced funds segment to close in positive terrain. FT India Balanced (-0.39 per cent) and ING Vysya Balanced (-0.39 per cent) occupied the second position.

Our article 'Open letter to SEBI - Factsheets' elicited a lot of visitor feedback; most of the feedback agreed with our stand on the issue of transparent and consistent disclosure of all relevant information related to a mutual fund scheme.

  • Open letter to SEBI: Your Views

    Having championed the cause of investor empowerment consistently over the years, we are aware of the issues that need to be resolved and realise that there is a lot more to be achieved. The investor feedback is a pointer to how much more needs to be accomplished before the Indian investor can claim to have got a fair deal. We encourage you to keep writing in to us and assure you that we will raise various investor-related issues at appropriate forums.

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