Should you invest in NFOs?
Full Circle Financial Planners’ Kalpesh Ashar discusses the ins and outs and key factors to consider, in a conversation with Tamanna Inamdar on ‘The Mutual Fund Show’.
For the latest news and updates, visit ndtvprofit.com
Full Circle Financial Planners’ Kalpesh Ashar discusses the ins and outs and key factors to consider, in a conversation with Tamanna Inamdar on ‘The Mutual Fund Show’.
For the latest news and updates, visit ndtvprofit.com
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TVTranscript
00:00 [MUSIC PLAYING]
00:03 Welcome.
00:09 You're watching the Mutual Fund Show on NDTV Profit.
00:12 I'm Tamannah Anandar.
00:14 And this is a show that aims to bring you
00:17 expert advice from the mutual fund industry
00:20 so you can make smart choices for your investments.
00:23 Now, today we're discussing NFOs.
00:26 That's new fund offers as an investment tool.
00:30 Here's a bit of context setting.
00:32 In a bull market, like we are in right now,
00:35 typically you have a slew of new fund offers.
00:39 AMCs, mutual fund companies, all of them
00:42 want to come out with more and more products for investors
00:46 to come into.
00:48 In fact, you've had record NFOs right from the year 2022,
00:52 2023.
00:54 There are at least 20-odd NFOs on offer just
00:57 for the month of February 2024.
01:00 The question that we're tackling today
01:03 is whether an NFO is actually a good investment option.
01:08 So an NFO typically comes at a face value of 10 rupees,
01:11 an NAV of 10 rupees.
01:13 You can equate it, in a sense, to an IPO,
01:17 except, of course, you don't have an immediate listing
01:21 price, et cetera.
01:22 It becomes attractive because of its NAV of usually fixed 10
01:27 rupees.
01:28 The question is that whether it's the right choice.
01:31 When should you go for an NFO?
01:33 And we're going to get you the pros and cons,
01:36 both sides of the story today when
01:38 it comes to new fund offers.
01:39 I'm speaking now first to Kalpesh Ashar.
01:42 He's CFP of Full Circle Financial Planners.
01:45 I will also be speaking with Alok Singh, who's
01:47 CIO of Bank of India Investment Managers.
01:50 They, in fact, have an NFO out.
01:52 And we'll ask him why he thinks NFOs are a good idea.
01:55 But first, for the other side of the story,
01:56 Kalpesh, great to have you on the show.
01:59 Thank you so much for joining us.
02:01 Let's first set a bit of context and put into perspective
02:05 why NFOs are seeing such great numbers right now.
02:10 Thanks, Kamal, for having me on this show on NETB Profit.
02:15 And always a pleasure doing a show with you.
02:18 The question about NFOs is that it's more of an emotional tag
02:24 or an emotional, I would say, attraction,
02:27 which investors have whenever there's
02:29 an NFO or stretching the yard a little bit
02:32 on the direct equity and IPO.
02:34 Because it comes out with a lot of fanfare and a lot
02:36 of attraction and a lot of publicity
02:39 given to the same thing.
02:40 But what we really need to see here
02:43 is that when do these NFOs actually
02:46 come into the limelight?
02:47 And as we've been seeing probably from, I think,
02:51 the last two, three years, would not be wrong to say,
02:53 that we are in a healthy bull run stage right now.
02:57 And this is exactly the period where
03:00 you will see a slew or a surge of NFOs being offered
03:05 by the mutual fund houses.
03:07 And it's pretty obvious.
03:08 The AMCs are into this business of expanding their own books
03:14 and offering more products, more varieties
03:17 to the investors, and also trying
03:20 to capitalize on what a particular team
03:22 or what a particular category has to offer.
03:26 And what better time than when the going is good?
03:29 And everybody is in a mood to invest.
03:32 And the economy looks good.
03:33 And the results are great.
03:35 So the mutual funds are pretty obviously
03:37 right in their place to launch new NFOs in a hurry.
03:42 And it becomes more of a heap of NFOs on the investor's
03:48 portfolio, if he or she were to subscribe
03:50 to a majority of them.
03:53 So the rationale has to be applied there.
03:55 And that is where a bit of common sense
03:57 by the investor himself, but more of a strict hand
04:01 by the advisor, needs to come in that what is right for you
04:05 or what is not right for you needs to be seen.
04:07 So it's more of a, I think, a phase of the markets
04:11 where NFOs come out.
04:12 And obviously, like what you also mentioned,
04:15 Tamanna, is that they come out with that--
04:18 I would say a low-high fixed-put-off,
04:20 any of your 10 rupees being offered,
04:22 which the investor feels that makes it a very cheap option.
04:26 And because it's the starting rate of the face value
04:28 of a mutual fund scheme.
04:30 So all these points put together,
04:33 it becomes an attractive proposition for the investor
04:37 to invest in it.
04:38 But again, the caveat remaining, does the investor
04:41 need it in his portfolio or not?
04:44 That is the million-dollar question.
04:46 And that is what we need to address, I think, on priority.
04:50 Yeah, so let me put it this way, Kapesh.
04:53 Apple to Apple, if it's a similar kind of fund,
04:57 whether it's a thematic fund, a sectoral fund,
05:00 a diversified fund, a multi-asset fund, a Flexicap
05:03 fund, would a previous fund or one with a longer track record
05:09 score above any NFO, just on the basis of the fact
05:13 that you actually have some kind of an idea of what
05:16 this fund's performance is like?
05:18 Absolutely.
05:18 You hit it on the head, Tamanna.
05:21 That's absolutely the criterion that a performing fund,
05:25 a fund which has been in existence for, say,
05:27 three, five, seven-year period, and has already
05:31 seen the various cycles of economy or the markets,
05:35 per se, I think is in a much more stronger standing,
05:40 much more better position to be, I think,
05:43 seen from a perspective from an investor.
05:46 Because it's weathered many storms.
05:48 Please understand that.
05:49 And it's also, if you say that in mutual funds,
05:52 what is the crux of mutual funds?
05:53 It offers diversification.
05:55 And that field also of diversification
05:58 has now been long explored by mutual funds.
06:01 So you used to have large caps earlier.
06:03 You used to have multi-caps.
06:04 You used to have lexicaps.
06:06 You used to have mid-caps and small caps.
06:08 So what's new?
06:09 The question is, what's new?
06:10 So by having a surge of NFOs calling themselves
06:15 a large cap or a mid-cap or something,
06:18 that's already there in the market.
06:19 It's up to an investor and his advisor
06:21 to sit together and find out what is right for him,
06:24 which is the right performing fund.
06:26 Does it match his goals?
06:27 Does the fund house adhere to the benchmarks, what
06:30 it has set for himself?
06:31 So those things put together, like a seasoned, experienced
06:35 fund would always, I think, have an edge over an NFO.
06:39 And rightly said, one more thing which you mentioned here
06:42 is that it's just the same thing which
06:46 is being offered time and again.
06:47 And for various reasons, which I spoke in an earlier segment
06:50 here, why are they keeping on offering it time and again?
06:55 One more thing which I would like to point out,
06:57 which I think is very important here, that post-2018,
07:00 SEBI came up with a lot of categories, which they opened
07:04 up, they subcategorized the mutual fund arena completely.
07:08 And that opened up spaces or slots
07:10 for many mutual fund houses to fix their schemes
07:13 if they didn't have a presence there.
07:15 So fair enough, it was done with a lot of rationale.
07:17 It helped a lot of, I think, dust to clear.
07:21 But then I think that has ended now.
07:24 There should be no, I think, fresh excitement for anybody
07:29 just hearing the word NFO.
07:30 There has to be a theme of inventiveness
07:34 or a theme which has not been explored
07:35 in the past, which compels the investor to invest in an NFO.
07:39 But the flip side of that, Kalpesh, is if I go by that,
07:43 then why should anyone invest in anything new?
07:46 Where is the case for investing in NFOs in that case?
07:50 Because you will be then restricted to just the funds
07:54 which have enough of a track record.
07:57 What does that mean for newer players that are coming
07:59 into the market, because there are quite a few of them?
08:01 They will obviously come with a new thinking, a new outlook.
08:05 Don't you think it'll become restrictive then
08:07 to only existing funds?
08:09 - Yes, I'll answer it in two ways.
08:11 So first let's talk about what is it
08:13 when you should invest in an NFO.
08:14 So for example, you talk about the Indian equity market
08:18 space where you talk about large caps, mid caps, small caps.
08:21 So it's the same ocean which everybody is trying
08:25 to pick up his best talk or pick up his best script
08:28 and pick up in a percentage or a rational,
08:31 which he or she thinks is the right,
08:32 that's the job of a fund manager.
08:34 Now, for example, if you're offering something
08:36 like a international fund category
08:39 or investing in something which is, say for example,
08:41 a NASDAQ team or in a European team,
08:44 which is something different,
08:46 which is not there in the Indian arena space
08:48 or you have the newer teams.
08:50 So you have the innovative, new age companies
08:52 which are not being explored.
08:53 Now that's something new and that sets your mind thinking
08:56 that, okay, should I take an exposure into that?
08:58 What is the rational behind it?
09:00 That sets your mind thinking.
09:02 And there should be always a question answer session
09:04 between the AMC and the investor or the advisor
09:08 to why should I invest in it?
09:10 What is so new in it which compels me to do it?
09:12 Second part of the question is that
09:15 what about the newer players?
09:16 So the mutual fund space has to get bigger.
09:19 It has to get more,
09:20 'cause I think this is the tip of the iceberg,
09:22 what we are seeing, the 18,000 per SIP book, which we have.
09:25 I think we have a lot more potential to do it.
09:28 Newer players are welcome.
09:30 We have a lot of unexplored space,
09:31 but let the newer players prove themselves.
09:34 My point is not for, I have no complaints.
09:37 Again, the AMCs are launching new fund offers.
09:40 They have their equal right to do it.
09:41 That's their business in which they are.
09:43 I'm talking about a buyer beware or a buyer caution
09:46 or a buyer awareness type of a thing
09:48 from the investor point of view
09:50 that let the fund house prove itself
09:53 in what different is it doing
09:55 and how is it adhering to the client interest
09:57 and also 100% performing to the required terms.
10:02 - We've been talking about NFOs on the show
10:05 and discussing whether NFOs are necessarily a good idea
10:09 as an investment option or not.
10:11 I'm joined now by Alok Singh.
10:13 He's the CIO of Bank of India Investment Managers.
10:16 And we want to get a different perspective
10:18 to the entire discussion.
10:20 Mr. Singh, welcome.
10:21 Thank you so much for speaking with us here at NDTV Profit.
10:25 Of course, the context is that you are launching
10:27 an NFO yourself.
10:28 It's in the process right now.
10:30 But let me start with the broad picture
10:32 because the question we've been asking
10:34 is without a track record like existing funds have,
10:39 are NFOs really the best bet for investors?
10:42 And what would you say to that?
10:44 - So if you look at, NFOs can be classified
10:50 into two categories.
10:52 One is basically there are existing funds
10:55 of that category may not be managed
10:58 by the same fund house or the same team.
11:01 And there basically there can be a value add
11:05 by the process they run, they look to manage it.
11:10 And it could be a fund which the concept
11:13 which already exists.
11:15 And there can be second category where the,
11:19 you know, it's a new category altogether
11:21 or a new concept altogether.
11:24 There of course, you know, there is no track record.
11:27 So in first case, obviously there's a track record
11:30 of that category.
11:32 What the fund house may offer is a new process
11:37 or the way to manage it.
11:38 But in the second category, yes,
11:40 where there are no similar funds
11:42 or the same concept does not exist anywhere.
11:46 There are somewhere, you know,
11:48 the leap of faith on depending on the concept
11:52 which we're talking about,
11:53 that is what the investor has to do.
11:57 But at the same time, everything starts somewhere.
12:00 So, you know, you can't say that only I will invest
12:03 when it is X years old and things like that.
12:06 - Yeah.
12:08 You know, having said that,
12:09 I want to understand from your perspective,
12:11 we've been speaking about this on the show
12:13 about a large number of NFOs hitting the market right now.
12:16 And of course that is a very clear characteristic
12:21 of a bull run.
12:22 Tell us about that perspective.
12:24 Why do AMCs, why do participants want to launch
12:28 a lot of NFOs right now?
12:30 You included.
12:31 - Yeah.
12:33 So obviously there is, you know,
12:36 you may have seen more NFOs
12:41 when the markets are doing good.
12:44 That is also because, you know,
12:47 you get to raise money when the people have money.
12:51 Typically, when the markets are not doing good,
12:55 even if that investment is not that good,
12:57 maybe people will not like to turn at that point in time,
13:00 or, you know, you're sitting on the mark to market losses.
13:03 When the markets are doing well,
13:05 people usually have more money.
13:08 Most of the money is in profit,
13:10 and they like to turn or look to evaluate new concepts
13:15 or re-divert, rebalance.
13:17 These are the reasons because of which, you know,
13:21 typically the new NFOs or even IPOs come
13:24 and people participate in that.
13:27 In our case, you know,
13:29 we are doing a multi-asset allocation fund.
13:34 While there are many multi-asset allocation funds
13:36 which are existing right now in the market,
13:40 but we are slightly different
13:43 because we are a debt-oriented multi-asset allocation.
13:47 Multi-asset as a concept,
13:49 we need to invest in three asset classes
13:52 up to minimum 10%.
13:55 So we are doing debt, equity, and gold,
13:58 where the debt is a larger portion.
14:02 And the reason we are doing it primarily
14:04 because for last three years,
14:05 the markets have been quite good.
14:07 People have made decent amount of money
14:09 and somewhere that the concept of risk
14:12 is less appreciated.
14:16 And we believe that, you know,
14:19 a debt-oriented funds also should be part
14:22 of the allocation strategy.
14:25 And that's why we are offering this at this juncture.
14:27 - Okay, fair enough.
14:28 And, you know, I want to thank you
14:31 for joining this discussion
14:32 because while we're not focusing solely on your fund,
14:35 we've talked about,
14:36 we're talking about a larger picture and a larger issue
14:38 and not specifically, you know, your fund.
14:41 I just want to make that very clear.
14:43 But I want to get Kalpesh's view
14:44 on some of the points that Mr. Alok Singh has made.
14:46 Mr. Singh, please do stay on with us
14:48 because we want to present both points of view
14:51 to our viewers.
14:52 On the point that you sometimes
14:56 have to take a leap of faith, Kalpesh,
14:58 but then there is a new idea
14:59 which is being presented as well.
15:01 That seems like a fair enough proposition.
15:04 - Yeah, fair enough.
15:06 So, you know, exactly the points
15:09 which Mr. Alok also mentioned
15:11 that in an NFO run,
15:12 the mindset of an investor is different
15:15 and that's why they would like to capitalize
15:17 on exactly the same point which I have mentioned.
15:19 But the crux point here is that, you know,
15:21 we are talking about just as a counter argument
15:24 and like what you rightly said,
15:25 it's not against a particular fund or a new NFO
15:28 that I would like to mention here.
15:31 But the thing is that, you know,
15:31 we have a multi-asset fund or a large cap fund
15:36 or a flexi-cap fund,
15:38 which is offered by all agencies
15:41 at some point or the other.
15:42 And to each his own, you know,
15:45 the concept, the taxation part
15:47 and everything is more or less the same.
15:49 The point is that the investor has to decide
15:53 that I do not, we have seen instances
15:56 because I face clients directly
15:58 where he might be having three or four
15:59 multi-asset funds in his portfolio.
16:02 Now that is surely detrimental to his portfolio returns.
16:06 You can't have four large cap funds.
16:09 You can't have three small cap funds in a portfolio.
16:13 And all of that is probably the,
16:15 you know, if you see it in detail,
16:16 when was this purchased?
16:18 All of them would probably be, you know,
16:21 from the inception, that is from the NFO stage.
16:23 And from a simple argument that it has been
16:26 either hard pushed to him
16:28 or he's been attracted towards it
16:30 or he's probably been misguided
16:32 or, you know, we don't know the reason.
16:34 But this is a major cause of concern for his portfolio.
16:38 And that is when, you know,
16:39 we financial advisors or planners
16:41 who look at the portfolio returns on an overall,
16:44 it's an overlap.
16:45 It is not meant for, you know,
16:46 reaching his financial goals.
16:48 And it becomes more of a burden rather than,
16:51 you know, an advantage in his portfolio.
16:53 So this type of, I would say,
16:56 a mixture or an assortment of funds in a portfolio,
16:59 I think that is detrimental.
17:00 And again, I would like to, you know, repeat here
17:02 that with, you know, due respect to the AMCs,
17:05 it's only investor or the client who decide
17:08 that which, you know, particular category
17:10 or which particular fund of AMC
17:13 he wants to patronize or select in his portfolio.
17:15 And then he does the due diligence and then invest.
17:18 Because then beyond that, he cannot stretch it.
17:21 - Okay, so you're saying it's not necessary
17:23 that a lot of funds in your portfolio is a good idea.
17:26 Mr. Alok Singh, I want to get your perspective on,
17:29 you know, the question which was raised with NFOs
17:31 that they have a larger cost attached to them
17:35 because they're newer funds.
17:37 So it turns out to be a little more expensive
17:40 for the investor.
17:41 There is probably not obviously a track record.
17:46 And if you go out looking in a market now,
17:48 which has a fair amount of depth like ours,
17:51 you will always find another alternative
17:53 with a longer track record.
17:55 Would you say this is fair or being a little harsh on NFOs?
17:58 - Yeah, so you are right on the part that, you know,
18:03 where the expense ratios structure exists right now.
18:08 For a smaller fund, it can be slightly more
18:12 than a larger fund.
18:14 But frankly speaking, in a larger scale,
18:17 that's a very small or, you know, microscopic view.
18:22 Because yes, you know, while the other panelists
18:25 have raised the point that there can be five large cap funds
18:29 and five expense in a portfolio,
18:31 but that is all what we are talking about is allocation.
18:34 The selection also plays an important role.
18:37 While there may be 30 large cap funds in the market
18:41 and there can be as a market in each category,
18:45 but does every fund perform as well?
18:47 No, even if there is a long-term difference
18:50 of say two, 3%, which can be,
18:53 if you look at on a compounding basis,
18:56 even 1% extra compounding for next 10 years
18:59 will make a lot of difference.
19:00 While somebody may say that, okay,
19:02 oh, this one particular fund is giving 18
19:05 and another is giving 19,
19:06 but on the compounding side, it makes a lot of difference.
19:08 So while I agree on the point that only
19:11 when we talk of the asset allocation,
19:13 then obviously we need, cannot have same fund type
19:18 or as a large portion of our portfolio, we need to choose,
19:21 but then the investor also needs to do the selection right.
19:25 We always talk of allocation.
19:27 We talk of, okay, invest X percentage in large cap,
19:30 X percentage in mid cap,
19:32 it's more X percentage in XYZ category,
19:35 but we rarely talk of selection
19:37 because selection makes a lot of difference as well.
19:40 Because we have seen over the period of time,
19:42 if you look at three or five or 10 years,
19:44 that records of even the existing funds,
19:47 they may have underperformed the best in class
19:50 and the person may be invested in not so.
19:52 So that is important thing which needs to be appreciated.
19:55 And that is why the people need to look at it holistically,
20:00 not just by the, okay, existence.
20:03 Existence does not lead to performance.
20:06 So we need to also look at ultimately
20:09 whosoever has given money or invested money
20:12 which for the wealth creation
20:13 and the wealth creation happens
20:15 not by virtue of just allocation.
20:17 Selection also plays an important role.
20:19 - Fair point, fair point.
20:20 So a very interesting debate here.
20:21 It's not a one size fits all.
20:23 In some cases, an NFO might be a good choice.
20:28 And of course, allocation also becomes key,
20:31 but don't choose something just because it's new.
20:34 On the other hand, don't ignore an option
20:39 just because it's new.
20:40 You will have to go into those details.
20:43 And that is really the point that we wanted to bring across.
20:46 Thank you so much, Mr. Alok Singh.
20:47 Thank you so much Kalpesh for joining us on the show today.
20:50 We hope this has been useful to our viewers
20:52 when deciding where to allocate their money.
20:55 Of course, if you want to reach out to us
20:56 for specific queries on your portfolio,
20:58 all of those numbers on your screen.
21:00 Until next time, thank you for watching.
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