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What to do with new funds?

Are new funds worthwhile or even superior investments? A smart investor in a new fund should do some homework first. Many could be rewarding in their initial run. But evaluating funds based on longer periods of performance is still a good idea.

In recent weeks, I have been writing about the launch of new kind of funds, apart from the numerous vanilla funds being launched. The noticeable among the new kind was Pioneer ITI P/E Ratio Fund, Asset Allocation Plans, Templeton India Floating Rate Bond Fund and the new kind of Short-term Plans.

The latest vanilla funds are three debt funds each -- Bond, Gilt and Liquid fund from BoB Mutual and First India Mutual, two Index Funds from Prudential ICICI and IL&FS Mutual Fund and a gilt fund from Standard Chartered Mutual Fund in two flavours -- Investment Plan and Short Term Plan.

With so many similar investment opportunities available at one go, these funds are likely to gain your attention. Every fund launch creates noise with billboards and screaming advertising justifying and building a case for itself. And you will be faced with the same old question. Are new funds worthwhile or even superior investments? With my conventional investment wisdom, I have always warned investors to steer clear of new mutual funds and to stay with funds that have established track records of three years or even longer. But an investor who followed that advice today would be forced to ignore many funds, which could be rewarding in their initial run. But evaluating funds based on longer periods of performance is still a good idea.

The key attractiveness of a new fund could be the zeal of a manager to succeed. It is no secret that robust past performance though no indicator of future performance but greatly helps attract new money into the fund.

The other new fund worth looking at could be a new kind of fund. After all, most of the open-end funds that we see today were launched in last five years only. And every category started with the launch of a new fund. So a new kind of fund deserves closer attention and objective evaluation.

A smart investor in a new fund should do some homework first. In other words, don't buy a new fund just because it's new. Evaluate a new vanilla fund first for its suitability to your goals, then weigh against an existing fund of similar objective with established track record. As for a new kind of fund see if its style matches your objectives and fits within your existing portfolio. Keeping these yardsticks in mind will save you from becoming a fund collector and help build an objective portfolio.

Fund Update: During the week, the market gained 108 points on the Sensex and 62 points on the broad based National Index. The key gainers during the week were once again the PSU heavy funds -- UTI Petro (7.82%), GIC Fortune '94 (7.25%), Pioneer ITI Prima (6.84%) and Pioneer ITI Bluechip (6.59%).