MF New Fund Offerings (NFO) are back in the market…

According to a recent report, there are nearly 35 new fund offerings (NFOs) lined up from various mutual fund houses. For starters, an NFO is the equivalent of an IPO. While companies raise money through an IPO, a mutual fund raises fresh money through an NFO. But the question is that a mutual fund is always available on tap and one can go and buy any fund from the AMC at any point of time. So what is the idea behind a mutual fund NFO? Basically, mutual funds use an NFO to launch a new idea or a new scheme altogether. The NFO helps them to create the market visibility and excitement to ensure that it is fully subscribed. Interestingly, the last time we saw such a large number of NFOs was at the peak of the previous bull market in 2007. Post 2009, mutual funds in India were seeing redemptions continuously till 2014. It is only after mid-2014 that the tide changed and Indian mutual funds again started getting inflows. The question therefore is what should investors do in the midst of this barrage of NFOs? Continue reading

Why are 10-year bond yields headed downwards?

Since the beginning of the calendar year the yield on 10-year G-Sec bonds has fallen from a high of 7.87% to the current level of 6.6%. The last time the 10-year G-Sec touched such a low level was back at the peak of the financial crisis in 2009 when central banks across the world were on a rate cutting spree to make adequate liquidity available at cheap rates. But, scratch the surface and the difference becomes a little more surprising. During the 2009 crisis, the repo rates were at a level of 4.75%. So the 10-year G-Sec yield at around the 6.5% level was perfectly understandable. But currently, the repo rates are at 6.25% (after the October monetary policy) but yields are already at the same level as 2009 when the repo rates were at 4.75%. So what exactly has driven this sharp fall in yields? Continue reading

What must investors track in Exchange Traded Funds (ETFs)?

Exchange Traded Funds (ETFs) are one of the best forms of investing passively in a variety of asset classes. When we say passive investing, we are referring to a situation where there are no active fund managers sitting and taking buy/sell decisions. To that extent, the expense ratio in an ETF is substantially lower compared to a normal equity fund. Over a longer period of time, this lower expense ratio adds up to quite a bit. You have ETFs on gold, silver and also on indices like the Nifty and Sensex. An ETF differs from a typical mutual fund in the sense that an ETF is a listed security like a stock. On the contrary, mutual funds have to be redeemed with the AMC and therefore any purchase or sale impacts the AUM of the fund. On the contrary, in case of ETF buyers and sellers the AUM of the fund does not get impacted as these are market transactions. Continue reading

What if the fund house you are invested in gets taken over?

Over the last couple of years we have seen some major fund houses selling out to other mutual fund AMCs. For example, Reliance AMC acquired the entire AUM of Goldman Sachs MF; HDFC AMC purchased the AUM of Morgan Stanley MF: Kotak Mutual Fund bought the AUM of Pinebridge MF; Birla AMC acquired ING Mutual Fund. More recently, Edelweiss MF is acquiring J P Morgan Mutual fund while DHFL Pramerica is taking over the business of Deutsche AMC in India. While these mergers and acquisitions surely have their synergies, the big question is what should you do as a mutual fund investor? If you are invested in a mutual fund that gets taken over by another AMC, should you stick on to the fund or should you exit. Here are a few key points to guide your decision… Continue reading

Should you opt for Credit Opportunity Funds?

A credit opportunity Fund is a version of a debt fund. Like any debt fund, the Credit Opportunity Fund (COF) also invests in debt instruments. But there are two key differences. Firstly, in the search for returns the COF is willing to invest in lower rated instruments. Generally, most funds stick to AAA and AA rated instruments to keep the risk of their fund low. The COF goes even lower than AA rated instruments to enhance the returns on the fund. Secondly, there is a greater degree of fund manager discretion in a COF. The fund manager actually takes a call on instruments which are good despite a low rating. He also takes a view on low rated instruments which have the potential to be upgraded in the future. So what should be your strategy with respect to COFs? Continue reading

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