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Thursday, 29 March 2012

Implications of extension of new fund offers for investors

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Investors should not wait for subscribing till the last day of the NFO for ensuring timely completion of the process

THERE are several occasions when a mutual fund announces the extension of a new fund offer (NFO) period. Investors are puzzled about whether this is a good sign or a bad one, and, hence, they tend to get worried when this happens.

There are different conditions under which an NFO's closing date is extended. There are several factors that need to be considered while analysing extensions.

Understanding the issue would help investors take right decisions based on available information.

Initial time period: An NFO is open for investment for a specific time period that is specified at the time of the launch of the issue. This is a period within which in investors can actually contribute the required amount to the fund and complete their investment requirements.

In most cases, the initial fund offer period is not very important due to the fact that these are open-ended funds, therefore, there will be several opportunities down the line when investors will be able to invest in the fund according to their convenience. There are no restrictions on when an investor invests in open ended funds.

At the same time, there are not going to be major changes witnessed immediately in terms of the value of the fund because it will be open for subscriptions for a few more days. The value of the fund depends on the underlying asset.

Inadequate subscriptions: There are times when an NFO does not get the required amount of investment from various investors during the initial time period. There are always some internal targets that are set for collections, therefore, when this is not met, then, the investor would find that the NFO period has been extended.

An investor must evaluate an NFO on its merits and whether it in tune with his requirements. Just because the NFO is not very popular with other investors, it does not necessarily mean that an investor should not subscribe to it, if he needs that kind of a fund exposure in his portfolio.

Facing adverse market conditions: Sometimes, there could be a sudden deterioration in market conditions and this could lead to poor sentiments among investors. In such a situation,

the fund offerings that are open might be affected, even though they would not have much to do with the situation. These conditions could prompt funds to extend their offer period, which would give investors more time to invest in the fund.

Investors should evaluate the situation and take action based only on their own interests.

Investor's action: Investors should be clear in their minds as to why they are actually investing in a particular area and a fund. If there is nothing that differentiates a fund from several others in the market, then it would not make much sense to subscribe to the new fund, and, hence, such offers can be put on hold to review performance.

However, there could be times when an NFO offers some unique features, in which case, an investor might want to subscribe because he wants to avail the benefits.

At the same time, there should not be any delay in making the investments. An investor should also not wait till the last day of the offer period to subscribe to ensure that the process is completed on time, failing which the investor faces the risk of losing an investment opportunity.

 

 

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Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

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Mutual Fund Application Forms Download Any Applications
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