My investment advisor is suggesting that I invest in a new fund that was launched recently. It is a closed end scheme of five years and I was told that it is a good way to ensure low volatility and high returns. Is it true? Should I invest in such a fund? - Nagesh Patil, Mumbai
What are the benefits of closed end schemes?
An open-ended diversified equity fund will be equally good.
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Not all new fund offers (NFOs) are suitable to invest in, because, as the name suggests, they are new funds with no prior track record or history to refer to. If you plan to stay invested for a five-year period, an open-ended diversified equity fund will be equally good. The other disadvantage of an NFO is that you cannot invest systematically over a period of time in it, which goes against the strategy of averaging when investing through SIPs.
It is for these reasons that NFOs are best avoidable. That said, there is a case to invest in an NFO as long as the fund has an investment idea that is unique and worth exploring. For everything else, it is best to stick to funds with tested history and performance track record.