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Avoiding NFOs

Should NFOs be avoided if it’s the manager of a fund that has proven itself?

It is always advised that NFOs of unproven funds should be avoided. What if the fund manager of the new fund is the same as that of the fund which has been a good performer? Should such NFOs also be avoided?
-    Sutanu Ray

You are right in your belief that the fund manager has an important role to play in the performance of a fund, but remember that other factors such as the fund’s objective and style, fund house’s expertise, etc. also have a hand in making a fund successful.

The new fund might have a different objective and investing style which will affect the fund manager’s decision making. Also, the freedom given to the fund manager is different in different fund houses. Hence, the efficiency with which the fund manager is able to generate returns for one fund may not be the same for other funds. Also, the effectiveness of a fund’s investing style cannot be predicted in advance.

We also suggest that you should not chase a fund manager. This might force you to churn your portfolio frequently despite the fund’s strategy working all fine and you may end up paying loads whenever the fund manager moves to some other fund/fund house.

Hence, by and large, NFOs should be avoided.

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