Search for:

Why Investing in NFOs is not a good idea?

Whenever a fund house launches an NFO, there is a lot of buzz in the market. You see ads everywhere; there are fund manager interviews where they extol the virtues of the new fund’s investment strategy, you see newspapers carrying articles detailing what the new fund is, and a whole lot more.


With so much happening around you, it is quite natural to get carried away and invest. But is it a good idea to invest in an NFO? Before we get into this debate, let’s first understand what an NFO is?


So, what exactly are NFOs?

When an asset management company launches a new fund, it first opens it up for a subscription for select days. The aim is to raise money for buying stocks for the fund’s portfolio and get it off the ground. This entire process is called NFO or New Fund Offer. 

In a lot of ways, it looks like an IPO, and that pushes people to buy in the NFO period. But there is no advantage like IPO. We will come to that later.


Now, as per regulation, in India, the NFO duration cannot be more than 15 days for any mutual fund.


After the NFO period, if the fund is open-ended, it starts accepting new investments within a few days. So, you can invest in a fund after the NFO period as well.

If it is a close-ended fund, then an investor can subscribe to the fund unit only during the NFO period and will have to hold it until the end of the duration. 


Now you know what NFOs are, let’s look at reasons we believe you should avoid investing in them.


1) No Track Record

The fund being launched is new and therefore has no track record. In the absence of a history, people tend to rely on a fund house’s past performance, which might not be the best approach. 


That’s because a new investing strategy comes with its challenges, and you don’t know whether the fund house has the expertise to overcome those challenges.

Also, you only know the broad mandate of the fund. You don’t know what will constitute the portfolio or if it will be able to execute its mandate as intended.


So, if a fund is being launched in a category where funds already exist, picking a fund with a track record makes a lot more sense. You will know what you are getting into as you can evaluate it on various parameters like past performance, risk it takes amongst other things.


Always pick a fund with history and a proven track record over a new fund.


2) NFOs are not like IPOs – There is no benefit of investing in the NFO period

As we said in the beginning, people look at NFOs as they look at IPOs. They think they will get benefitted if the demand for funds increases, just like it happens in stocks. This notion can’t be farther from the truth.


That’s because a mutual fund’s NAV doesn’t get affected by demand and supply. 

Here’s why – the number of units available in case of a stock is limited, so their price goes up if there is more demand. On the contrary, there is no limit to how many units a mutual fund can have. Units get created as and when required.


3) Higher cost

Every fund charges a fee to manage your money. This fee is a percentage of the portfolio and gets deducted from the returns generated. In technical terms, it is called the expense ratio.


A higher expense ratio means you pay a higher fee and it affects the returns you get 

As per regulations in India, a fund with a smaller Asset Under Management (AUM) can charge a higher expense ratio as compared to a fund with a higher AUM. 


Now, since the fund size, when launched is small, the AMC has the flexibility to keep the expense ratio on the higher side.


4) Launch Timing

AMCs launch new funds because they want to complete or increase their product basket, other times it could be because there is a demand in the market for a particular kind of fund. The reason could be any.


So, just because a fund is launched doesn’t necessarily mean it is the right time to invest in that fund category. Especially if the trigger is market demand  (you can figure it out by seeing how many similar funds have come in the recent past), it is best to stay away.


But there are a couple of exceptions though:

  • If the NFO is for a close-ended fund and it fills a gap in your portfolio, you can consider investing. However, you need to be aware of the investing strategy the fund will follow as you will be committing for a specified duration.

  • When you are getting a discount during the NFO, like the 5% discount Bharat CPSE ETF NFO offered, it might be worthwhile considering them. In the Bharat CPSE ETF, you knew in which companies’ money will get invested (as it is an index fund) and you got a discount as well.

Conclusion

Investing in NFOs is like a shot in the dark. It will be wise to opt for an existing scheme that has a proven track record instead of going for something new or unpredictable.

Even if it is something unique and can be a good fit in your portfolio, wait for some time to see if the theme or investment strategy plays out as intended.


Source: ET MONEY

Is PMS investment the right way to invest for you?

1. One way of investing a large amount

Portfolio management services (PMS) is a customized solution for high net-worth individuals (HNIs), it offers greater flexibility with an investor’s money and higher returns too. 


So if you have a substantial amount you want to invest, such as say a crore, this service can prove beneficial. But is it the right product for you? Read to find out.


2. How PMS works for an investor

Portfolio management service (PMS) is provided by professional money managers to informed investors and can be tailored to meet specific investment objectives. PMS providers invest directly in securities through focused portfolios. 


So one’s account will be kept separate and operated according to his/her investment mandate in a discretionary PMS, where an investment manager takes all decisions in sync with the investor’s goals.


3. How it is different from MFs

Unlike mutual funds, the investors’ assets here are not pooled into one large fund. Portfolio Management Service (PMS) uses a separate bank account and Demat account for each client. 


The minimum investment amount is Rs 50 lakh for PMS. You can see the portfolio daily through your Demat account.


4. Higher risk-reward aspect

This structure allows the fund managers to take concentrated calls on their high-conviction stocks without too many regulatory and operational constraints prevalent in a mutual fund portfolio. 


It may generate a higher return as the fund manager will have greater flexibility to choose or hold stocks and capitalize on the market opportunities in the smaller and newer companies that may have the potential for high growth. This may lead to a higher risk, which may be best mitigated through a long-term investment horizon.


5. It is a good option if…

If you wish to set this corpus aside for your retirement or in other words, for the long-term, this makes sense. The higher transparency and regular reporting as compared to a mutual fund are also plus points. 


Stocks are bought and sold in your name, with the help of a power of attorney, which means you can monitor all investment activities in real-time. As a PMS investor, you may also hold direct interactions with fund managers, should you feel the need.


Source: – The Economic Times

5 Most Popular Ways to Save Tax | Deeva Ventures Pvt Ltd

5 Most Popular Ways to Save Tax

1. Equity Linked Saving Scheme (ELSS)

As the name suggests, Equity Linked Saving Scheme or ELSS is a type of mutual fund scheme that primarily invests in the stock market or Equity. 


Investments of up to 1.5 Lac done in ELSS Mutual Funds are eligible for tax deduction under section 80C of the Income Tax Act. The advantage ELSS has over other tax-saving instruments is the shortest lock-in period of 3 years. 


This means you can sell your investment only after 3 years, from the date of purchase! However, to maximize returns from ELSS funds, it is recommended to keep your investments intact for the maximum duration possible. 


If you have an ELSS SIP (Systematic Investment Plan), each installment has a lock-in period of three years, which means each of your installments will have a different maturity date.


2. Life Insurance

Life insurance policies can be useful tax planning tools because the policyholder is eligible for tax benefits under the Income Tax Act 1961 (Act). 


Though there are multiple modes for saving tax, life insurance is one of the most effective tax planning instruments. Plans from Life Insurance can be used for protection, long-term savings, and tax planning.


3. Health Insurance

Health care plans provide tax benefits. Premiums paid towards your health care policy are eligible for tax deductions under Section 80D of the Income Tax Act, 1961. The quantum of the deduction is as under:


  • A) In the case of the individual, Rs. 25,000 for himself and his family

  • B) If an individual or spouse is 60 years old or more the deduction available is Rs 50,000

  • C) An additional deduction for insurance of parents (father or mother or both, whether dependent or not) is available to the extent of Rs. 25,000 if less than 60 years old and Rs 50,000 if parents are 60 years old or more.

  • D) For uninsured super senior citizens (80 years old or more) medical expenditure incurred up to Rs 50,000 shall be allowed

4. National Pension Scheme (NPS)

A tax exemption of Rs.1.5 lakh can be claimed on the employee’s and employer’s contribution towards the National Pension System (NPS). Tax benefits can be claimed under Section 80CCD(1), 80CCD(2), and 80CCD(1B) of the Income Tax Act.


A) 80CCD(1), which comes under Section 80C, covers self-contribution. Salaried employees can claim a maximum deduction of 10% of their salary, while self-employed individuals can claim up to 20% of their gross income.


B) 80CCD(2), which is also a part of Section 80C, covers the employer’s contribution towards NPS. This benefit cannot be claimed by self-employed individuals. The maximum amount that an individual is eligible for deduction is either the employer’s NPS contribution or 10% of basic salary plus Dearness Allowance (DA).


C) Under Section 80CCD(1B), individuals can claim an additional amount of Rs.50,000 for any other self-contributions as an NPS tax benefit.

Therefore, individuals can claim up to Rs.2 lakh as tax benefits under NPS.


5. Home Loans

A) Under Section 80C, you can claim a deduction up to ₹ 1.50 Lakh for the principal repayment done in the financial year.


B) Under Section 24B, you can claim a deduction for up to ₹ 2 Lakh for the accrual and payment of interest on the home loan.


C) Under Section 80EEA, you can claim a deduction for up to ₹ 1.50 Lakh for the interest payment of a home loan availed during the financial year.


D) Under Section 80EE, you can claim an additional deduction of up to ₹ 50,000 for the interest payment of the home loan, if you have availed home loan for an amount less than ₹ 35 Lakh and the value of the property is within ₹ 25 Lakh.


E) In the case of a joint home loan, each borrower can claim a deduction of principal repayment (section 80C) and interest payment (section 24b) if they are also the co-owners of the property.