Does It Make Sense to Start SIP along with New Fund Offers?

Posted On Wednesday, Jul 27, 2022



Whenever a New Fund Offer (NFO) is launched, you see its advertisements everywhere: the newspapers and financial websites publish the Fund Manager’s interviews and articles about the NFO explaining its investment strategy. All of it ultimately creates a lot of buzz about the NFO in the market, and you, the investor, naturally get carried away and often invest a portion of your savings.

In other words, many investors tend to invest in the NFOs because they are generally launched at base NAV. It gives the investors an impression that they are getting a good deal with the face value purchase compared to existing mutual fund schemes. However, that does not reveal anything about how the respective fund would perform for its investors in the future, i.e., whether it would create wealth or erode your capital.

Furthermore, to benefit from the rupee-cost averaging and compounding, many investors choose the SIP route to invest -- since it is easy on the wallet and helps make systematic investments every week/month/quarter. But are all New Fund Offers worth your hard-earned money?

An NFO is the first-time subscription offer for a new scheme launched by the respective fund house or Asset Management Company (AMC). The primary objective behind launching the NFOs is to raise money from you, the investor -- encouraging you to invest, of course -- and manage the AUM by deploying in the capital markets, as per the stated investment objective of the scheme.

The NFOs could be for Open-ended Schemes or Closed-ended Schemes. The Open-ended Schemes are re open for investors to for continuous sale and repurchase at Net Asset Value based prices after the NFO closing date. Furthermore, If Scheme Information Documeent permits investors can Initiate request for Systematic Investment Plan (SIP) at the time of NFO along with the first investment during the NFO period. The SIP request given during the NFO period are processed after scheme reopens for continuous sale and repurchase after NFO. On the other hand, in the case of Closed-ended NFOs, as the name suggests, you are allowed to invest only during the NFO period and not after the NFO closes for the subscription.

As an investor, your ultimate goal of investing in any financial instrument is to generate good returns corresponding to your risk appetite. Therefore, it is crucial to analyse your risk profile, investment objective, and the time horizon before investing alongside considering certain characteristics of the NFO before investing, whether you do SIPs or make a lump sum investment.

As you must know, checking the fund’s past performance and the risk it takes are two of the many things you need to consider when selecting mutual funds. However, that is not possible when it comes to NFOs as they do not have any track records. Therefore, the first and foremost thing you should do is to check the background of the fund house, how their existing funds are performing, and whether the NFO is really unique.

If the fund house does not have a proven track record and credible fund manager, it would be a very risky decision to invest in such an NFO and hence it would be wise to give it a miss. That said, you should also know that having a reputable background, proven track record, and experienced fund manager does not guarantee the success of an NFO.

When investing in NFOs, it is important to consider the uniqueness of the fund in terms of asset allocation and investment strategy. Since investing in NFOs is a risky affair, it does not make sense to invest in the same category of mutual funds that you already own in your portfolio, even if the NFO aligns with your investment objective and risk profile. The NFOs are launched with various themes, which can help you add diversification to your portfolio if you have not invested in that particular theme. However, such thematic funds expose you to higher risk. Therefore, it is not advisable to expose to thematic NFOs, especially when you are a novice mutual fund investor.

Final words...

That being said, you can consider starting a small amount of SIP in an NFO if a reputable fund house comes up with a unique and interesting fund that you are optimistic about and compliments your portfolio and it is not available in the existing funds.

Also, make sure the NFO you are considering is in line with your investment objectives, risk profile, financial goals, and investment horizon. If the NFO does not make the best fit for you, it would be a wise decision to skip that NFO and invest in existing mutual fund schemes with an established and appealing performance track record.

Happy Investing!

Disclaimer, Statutory Details & Risk Factors:

The views expressed here in this article / video are for general information and reading purpose only and do not constitute any guidelines and recommendations on any course of action to be followed by the reader. Quantum AMC / Quantum Mutual Fund is not guaranteeing / offering / communicating any indicative yield on investments made in the scheme(s). The views are not meant to serve as a professional guide / investment advice / intended to be an offer or solicitation for the purchase or sale of any financial product or instrument or mutual fund units for the reader. The article has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been solicited based upon the information provided herein, due care has been taken to ensure that the facts are accurate and views given are fair and reasonable as on date. Readers of this article should rely on information/data arising out of their own investigations and advised to seek independent professional advice and arrive at an informed decision before making any investments.

Mutual fund investments are subject to market risks read all scheme related documents carefully.

Please visit – to read scheme specific risk factors. Investors in the Scheme(s) are not being offered a guaranteed or assured rate of return and there can be no assurance that the schemes objective will be achieved and the NAV of the scheme(s) may go up and down depending upon the factors and forces affecting securities market. Investment in mutual fund units involves investment risk such as trading volumes, settlement risk, liquidity risk, default risk including possible loss of capital. Past performance of the sponsor / AMC / Mutual Fund does not indicate the future performance of the Scheme(s). Statutory Details: Quantum Mutual Fund (the Fund) has been constituted as a Trust under the Indian Trusts Act, 1882. Sponsor: Quantum Advisors Private Limited. (liability of Sponsor limited to Rs. 1,00,000/-) Trustee: Quantum Trustee Company Private Limited. Investment Manager: Quantum Asset Management Company Private Limited. The Sponsor, Trustee and Investment Manager are incorporated under the Companies Act, 1956.

Above article is authored by Quantum.

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