2 promising NFOs on the horizon

Normally, as a matter of practice, we at AUM Financial Advisors do not recommend Mutual Fund New Fund Offers or NFOs.

There are a couple of reasons for the same. First and foremost, when there are existing mutual fund schemes with proven track record, why should I take the risk and invest in a new mutual fund scheme without any track record. Second, the initial expenses in an NFO are generally higher as the investor base is small compared to an existing scheme where the expenses are divided amongst a wider investor base.

However, 2 new NFOs running currently have forced me to make an exception.

NFO I: The first NFO that I am recommending to my client is the IDFC Infrastructure Fund.  (www.idfcinfrafund.co.in ). By the way please do not confuse IDFC Infrastructure Fund, which is essentially a Sectoral Mutual Fund that shall invest in the Infrastructure based companies with IDFC Infra Bonds (http://niravpanchmatia.blogspot.com/search/label/IDFC%20Infrastructure%20Bonds ) which is essentially a debt product offering fixed rate of return and not a mutual fund product.

Now, there are a couple of reasons why I am bullish on this fund. First, IDFC, the parent company of IDFC Mutual Fund, is the biggest & most experienced infrastructure finance company in India. Nobody understands the infrastructure space in India better than IDFC. Second, Mr. Kenneth Andrade, the CIO of IDFC Mutual Fund has already proven his mettle with great performance over last 3 years by his funds IDFC Premier Equity Fund & IDFC Small & Midcap Fund. Third, the infrastructure sector is the worst performing sector over the last few years. This coupled with the recent correction in the market has ensured that most infrastructure stocks have corrected by 40 to 50% and are fairly valued today available at great valuations. So the pedigree of the parent company IDFC, the timing of the NFO and beaten down valuations in the infra space, all put together makes IDFC Infrastructure Fund an attractive bet. However, a word of caution here. IDFC Infrastructure Fund is a sectoral fund. A sector based fund is more volatile than equity diversified mutual funds and sometimes takes longer duration to give results. Also, Infrastructure as a theme requires a long gestation period and needs 5 to 7 years to show results. INVEST with a 5 to 7 years investment horizon.

NFO II: The second NFO that I am recommending to my client is the Reliance Gold Savings Fund.  Reliance Mutual Fund, the biggest AMC operating in India, has introduced a new asset class in Mutual Funds, GOLD. Every Indian wishes to buy gold every month but most do not have the wherewithal to do so. However, Reliance has made this possible by bringing Reliance Gold Savings Fund. Until now, either one was forced to buy physical gold (from the local jeweller and worry about its purity or from the bank and pay a premium to the market) or if one needed to buy gold in demat or electronic form, then eGold or Gold ETFs (Exchange Traded Funds) were the only option available wherein one could buy gold electronically using the commodities or trading account and pay brokerage. However, in either of these cases, one could not do a systematic Investment Plan or an SIP in Gold i.e.: buy fixed amount of gold every month. Considering the recent surge in prices of gold, SIP is the best way of buying Gold in these volatile times. Reliance Gold Savings Fund is just like any other mutual fund schemes with zero entry load and 1% exit load for the 1^st year. What more, one can do SIP of as little as Rs. 100 per month in Reliance Gold Savings fund. What this means is that you can now buy as little as Rs. 100 worth of Gold every month. One caveat here. The expense ratio is 1.50% pa. i.e.; this scheme can charge maximum expenses equal to 1.50% pa. However, I believe, this is a small price to pay for the convenience of buying gold every month and not bothering about the purity or the physical security of Gold.

However, expect more such offerings in near future from other mutual fund companies probably at lower expense ratios. Meanwhile, INVEST via SIP and buy at dips in Reliance Gold Savings Fund.

Both the above NFOs are closing on Feb 28^th, 2011.