Wise Wealth Advisors

D.Muthukrishnan (Muthu), Certified Financial Planner- Personal Financial Advisor

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New Launches

Posted by Muthu on January 13, 2014

This is a season of NFOs (New Fund Offer). In our profession (business would be the apt word for asset gathering); we never learn any lessons from the past. NFOs, that too closed ended ones, have burnt the fingers of the investors severely in the past. Though given the equity market valuations this time, it may not end up badly for investors, still what is being done by some fund houses and the distributors are unethical.

There is nothing new in these new fund offers which cannot be done through their existing funds. If these new funds perform well, the dozens of existing ones may do equally well or even better as they have proven track record.

The argument fund houses and distributors provide is that it is difficult to mobilize money in existing schemes and it is easier to collect the same through NFOs. There are advisors / distributors like us who never do NFOs. There are some ethical fund houses that don’t come with NFOs on flimsy grounds. It is not that we or they are not able to survive. Educating investors about merits of equity investing in existing schemes may be a time consuming exercise. But that is something which the fund houses and distributors should learn to live with. Some amount of pain and sacrifice need to be undergone to mobilize long term money which is in the interest of investors.

The history of closed ended NFOs suggests that the managers have less incentive to perform when the money is locked with them for few years. The fund house is also assured of income through management fees for few years. Advisors are paid phenomenal brokerage of 3.5% to 7% (yes, you read it right) instead of a 0.5% or 0.75% trail they may get through the existing performing funds.

NFOs are really good- for fund houses and distributors- in terms of assured assets for few years and good revenue. It has nothing good to offer to investors. In fact most NFOs may be riskier than the existing diversified equity schemes as they operate on a particular theme or premise.

Some fund houses have now started launching series of NFOs. The best way to punish them is NOT to provide the easy money they are seeking for. Let fund houses and distributors work hard and sacrifice immediate gratification to educate you and then claim a share of your wallet.

We are not against any one making money. We also exist in profession to make money. Since we deal with your money, we have more fiduciary responsibility than other professions. “Knowingly do no harm” is extremely important. How we make money is as important as how much we make. Hope it reaches the ears of fund houses and distributors.

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