A mutual fund agent is trying to sell me a new ELSS fund. His reasoning is that I should invest in this fund as the fund manager will deploy the cash over a period of 6 months and thus provide a cushion from the peak of the market, with the markets crossing 10,000 and all that. Secondly, I will not have to pay entry load. As of now, there is also no exit load for the same. I started working in this financial year only 3 months ago and have not made any tax-saving investments yet. I want to invest a lump sum for the same, and prefer to invest through SIP in HDFC Taxsaver or Magnum Taxgain for the next year. From this point of view, please suggest if I should go for the NFO for the lump sum and set up a SIP in my preferred funds for next year.
-Pallavi The first justification given by your mutual fund agent assumes that this is actually the peak of the markets and we are in for troubled times in the very near future. Though an investor should be concerned about the huge run-up in the markets but such a view is nothing more than speculation. Secondly, whether the fund would keep cash at the moment and invest it gradually cannot be said with certainty at the moment. In any case, this argument is irrelevant because this is not an advantage that this new fund has over the existing ones. If the managers of existing funds turn bearish in their outlook, they can very well book profits, increase the cash component in the portfolio, and then invest gradually in the markets, or wait for a correction before investing or whatever they deem fit.
As regards the entry load, new funds may not charge any load but they charge initial issue expenses, which are amortized over a period of three to five years (i.e., a small part of it is deducted from the NAV everyday). Though it remains a hidden expense as it is not charged up-front, but it makes new funds more expensive than older ones. Check out how much this fund is likely to charge as initial issue expenses.
For your tax saving investments, though little time is left in the current financial year, but still it will advisable to spread your investments as much as possible, maybe in 2-3 installments. The funds that you have chosen are good. But you will be advised not to create SIPs right now for your tax-saving investments of the next financial year. It would be better to wait and see what this year's budget has on offer in regard to tax-saving investments and decide accordingly.