Buying mutual fund NFOs to get models at Rs10 is a false impression

I’ve ₹5 lakh and I’m pondering of investing in mutual funds as lump sum, particularly within the NFO interval, in order that I can get the unit worth at Rs10. Is it a very good technique to take a position as a lump sum as a result of current fund NAV shall be excessive?

Name withheld

Answer by Harshad Chetanwala, founder, Mywealthgrowth.com

The query you may have put ahead has been there for years and the difficulty continues to confuse traders. Investing in NFO for getting models at Rs10 which is cheaper in comparison with current funds the place the NAV is excessive is likely one of the largest misconceptions in mutual fund investing. Let us perceive with the assistance of an instance.

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As evident from the above desk, what actually issues is the portfolio and efficiency of the fund, and never the variety of models you maintain within the fund. In the above instance, despite the fact that you’ll have invested in an current fund, the worth of your funding after one 12 months would have been identical as each the funds have appreciated by 10%.

It is best to put money into current funds as an alternative of NFOs as there’s extra details about these funds like their portfolio, previous efficiency and different particulars. From an funding perspective, have a look at an NFO if that fund is providing a singular funding alternative that isn’t accessible at current inside current funds. Otherwise, you’ll be able to put money into current funds after analysing them with out worrying in regards to the NAV.

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