It’s less difficult to sell equities or units of equity-oriented mutual funds in a increasing market place, specifically close to the peak when the current investors have currently seasoned higher gains, rather than promoting in a falling market place. The sweet encounter of the current investors lures new and novice investors in overheated markets at higher dangers.
However, to take benefit of the sentiment of amateur investors, Asset Management Companies (AMCs) come out with New Fund Offers (NFOs) though several organizations launch Initial Public Offers (IPOs) or Followup Public Offers (FPOs), as the case could be.
For instance, when the BSE Sensex rose from significantly less than 3,000 level to the all-time higher of more than 20,000 points in significantly less than 4 years, as several as 28 NFOs have been launched in the initially quarter of 2008, when the market place crossed the 20,000 level.
Most of the NFOs have been quickly in deep red soon after the index crashed to under the 9,000 level in the year 2008 itself. The novice investors lost patience inside a year or two, and suffered massive losses soon after redeeming their investments, even as the Sensex took practically 5 years 10 months to regain the 20,000 level.
According to a report, about 50 per cent of the NFO investors redeemed their units just before 2011, therefore suffering moderate to heavy losses.
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However, it appears each investors and person distributors have discovered a lesson from the 2008 episode and are more cautious in their method this time.
According to a survey performed by All Mutual Fund Distributors Welfare Association (AMDwA) amongst its members relating to – “Should Mutual Fund Distributors (MFDs) recommend NFO to clients with the markets at lifetime high?” – the majority of distributors stated they will not advise it.
While 50 per cent of the participants in the AMDwA survey stated ‘No’, a different 7 per cent stated ‘Absolutely No’. About 22 per cent of the participants voted for the selection ‘Depends on Investment Objective (of the clients)’. While about 6 per cent voted for the selection ‘At this market level, suitable NFO can be a better choice’, about 13 per cent stated ‘Yes’. About 2 per cent of the participants stay undecided and clicked on ‘Can’t say.
“One should invest in an NFO only if it offers a unique investment opportunity matching financial goals and risk appetite. In case of an NFO based on any sector or theme, only those with higher risk appetite and the ability to closely track the concerned theme or sector for timing their investments should opt for such NFOs. Investors should also factor in the past performance record of the funds managed by NFO’s fund manager and its fund house before investing in any NFO,” stated Sahil Arora – Senior Director, Paisabazaar.com.
“Else, investors should stick to existing mutual funds having a good track record of beating its benchmark indices and peer funds. The past performance data of an existing mutual fund would also help investors in finding out how the concerned fund performed in the previous market and economic cycles,” he added.
So, just before taking a choice on investing in a new fund, seek the advice of your monetary advisor to ascertain if it will assistance you in reaching your monetary objectives.