How to select new fund offer?

As equity market keeps on scaling new highs, fund houses are coming out with new fund offer (NFO) to take advantage of investors' interest in the equity market. Currently (November 23, 2017) there are seven NFOs open for subscription out of which one is open-ended, and rest are closed-ended. It is no surprise that out of these, six are closed-ended, while three belongs to tax saving category. As there are only four months left for the financial year ending, many employees might have started receiving reminders from their human resource department to submit their investment proof.

So, should you go for any of these NFOs, tax saving or otherwise when there are already close to 2000 schemes offered by fund houses? If you decide to go for one of these NFOs or any NFO in future, what should be the selection criterion?

To decide if you should go for an NFO, you need to check if it is offering something special, which is not being offered by existing funds and how it serves your investment objective better. If it suits your need you can subscribe the issue. Now the question is what you need to check before investing in these NFOs.

The fund house that is offering the scheme: There are more than 40 fund houses in India, not all are same in terms of their offerings and service. Therefore, one of the consideration is that you should invest on those NFOs that are coming from reputed fund houses.

Past performance of fund manager: Although past performance is no guarantee of future performance, it is better to check the track record of the fund manager who is going to manage the fund.

Fund objectives: While launching NFO, objective of the fund is well set. This objective gives the major direction to investment and hence fund’s performance. Therefore, if NFO is launched with objective of capital protection, most part of the corpus will get invested in fixed income securities and hence returns will be not as high as pure equity funds. Hence, you should check your investment objective match with fund’s investment objective.

Lock-in or closed-ended Fund: Closed-ended funds are those which come with fixed tenures. Therefore, you cannot exit the fund till it matures or that fixed period is over. Nevertheless, these schemes are, however, mandatorily listed on the stock exchange. Nonetheless, it does not guarantee you liquidity as there may not be buyers for that scheme.