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Is it advisable for an investor, who's been investing in mutual funds for the last five years, to invest in New Fund Offers? I'm often approached by relationship managers to switch to an NFO.
- Rohit Kumar
New Fund Offers make sense only if they have some unique offering which fulfils an investment need, which existing products or mutual fund schemes are unable to. But such NFOs are very rare to come across. So for all practical purposes, by and large, one should stick with the old and more established funds and avoid investing in NFOs. While deciding whether there is any specific or a unique investment need that is getting fulfilled by the NFO, one should look beyond the marketing narrative which would make you believe that this product is indispensable for your portfolio.
Talking about relationship managers, just bear in mind that when they ask you to switch from an existing fund to an NFO, more often than not, it ends up serving their interests more than yours. So you should really avoid the temptation to switch from an established fund to an NFO.
The only few reasons you should consider while exiting your existing fund are - first, when it has turned into a sustained underperformer and you are looking for better alternatives. Second, there are some fundamental shifts in the investment style or the investment pattern of the fund which makes it unsuitable for you and you want to move out of it. Third, you need the money or your investment needs have changed and therefore you need to move to a more suitable product. And finally, you may also consider exiting a fund for the purpose of rebalancing and restoring your asset allocation. So be guided by these needs to consider exiting from a fund.
This article was originally published on February 05, 2021.
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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