I recently saw an ad by ICICI Prudential Dynamic fund which said that investments in the fund, when it was launched in 2002, became 10 fold in a matter of 10-11 years. Is it a good idea to put small amounts like Rs 5,000-10,000 in NFOs and hold it for 10 years for long term gains?
We generally advise our readers to stay away from NFOs as it entails venturing into an unknown territory. It is always better to invest in funds with a compelling history. Since you plan to stay invested for long term, it would be best for you to pick a fund with good track record and invest your small savings regularly.
Even if you put a small amount as one-time investment in an NFO, you don’t really know whether your investment will grow or depreciate and there is no past record of the fund’s performance. Your investments may grow. They may not.
Investing regularly holds merit as your money gets compounded and is capable of generating disproportionately high amounts after some years. Following a Systematic Investment Plan (SIP) helps as you will buy more when markets are low, and profit margins are high for units bought at lower price.
Also, SIPs eliminate the mental load of deciding when to invest and lead to better returns. Another point to note is that long term investments in a good fund will anyway give you good returns. You don’t need an NFO for that.
However, you can invest in an NFO only if you strongly believe that the fund's allocation, management or the sector is bound to do well.