Naya Hai Wah..!

 ..Naya Hai Wah !

- Dr. Virendra Tatake

    An important event in the history of Indian mutual funds took place in the first week of July 2021 . Huge amount of Rs  Ten Thousand Crore  was invested in the new fund offer(NFO ) of ICICI Prudential Flexicap Fund. This is the first time such a large amount has been deposited in any new fund. About four lakh retail investors have invested in this new fund .This can be said to be a positive result of the growing awareness among  investors about mutual fund investing.

  When any new mutual fund comes in the market, its price is Rs. 10 per unit. The market price of an existing old mutual fund unit in the market is definitely

much higher than this. This makes investors more inclined towards new mutual funds.

But while doing so, investors should keep in mind  following three points

 1. Understand the difference between NFO and IPO

There is a fundamental difference between a New Fund Offer (NFO) and an Initial Public Offer (IPO). In an IPO, a company brings new shares to the market. The number of such stocks is limited so if the demand for such stocks is much higher than the supply (oversubscription) then the market price of such stocks is likely to increase rapidly in a few days. In NFOs, on the other hand, the number of mutual fund units is unlimited, so it is unlikely that such a benefit will be available in the short run.

 2. New funds are not cheap

It may  be misunderstood that a new fund of Rs 10 is cheaper and older funds in the market are more expensive. However, any fund invests in market shares from the accumulated amount, so the profit and loss of the investor depends on the market value of these stocks. Therefore, it is wrong to assume that a fund available for Rs.10  is cheaper. Older funds may seem expensive at first glance, but they might have purchased shares at a lower prices, which benefits investors.

Therefore, instead of looking at the unit price of a mutual fund, look at its returns  .

We can understand it with the help of a simple example  this. If a new mutual fund, priced at Rs 10  with annual has  returns of  20 per cent over the next year, it  will cost Rs 12 per unit after one year. On the other hand, if a mutual fund with a price of Rs. 200 gives a return of 40% , its price will be Rs.280

 This means that the market value of one lakh rupees invested in a new mutual fund will be one lakh twenty thousand rupees while the market value of one lakh rupees invested in an old fund will be one lakh forty thousand rupees. Therefore, it is important to keep in mind that the profit and loss of an investor depends on the annual returns rather than the unit price of the mutual fund.

 3. New Mutual Fund's Progress Book is not available

It is easy to evaluate the performance of old mutual funds. Information is easily available on how much such funds have returned so far, how much their assets are, how they performed during the previous ups and downs, and whether they are better than other competing mutual funds. In the case of new funds, however, no such information is available as the performance of that fund has not yet started.  So it can be risky to make a large investment in such a fund .

 What should investors do ?

Avoid the hassle of investing in every new mutual fund that comes into the market. Instead, study the investment strategy of such funds and understand their investment objectives. Invest in a new fund if it is innovative and you have not invested in such a fund before. If the stock market is at a very high level when investing in a new fund, then one should adopt SIP route of investment rather than lump sum investment .

(The author is associated with IGBS as Director)

Dr. Virendra Tatake
Director
Indira Global Business School, Pune

Mere Paas Sensex Hai !

 

Mere Paas Sensex Hai !

Dr. Virendra  V. Tatake

The BSE benchmark Sensex is well-known to ordinary investors. Further as Sensex has recently reached the highest level in the history of the stock market, it has become a topic of discussion and curiosity for a common man. Investors often wonder if they can buy the Sensex.

The Sensex is comprised of 30 most liquid and best performing companies on the Bombay Stock Exchange. . The Sensex, which had a base level of 1978-79, started at 100 and has gone through many ups and downs to reach its highest level. It is a number created with the help of an equation to predict the direction of the stock market, so it is not possible to buy it directly from the stock market. The Sensex can be bought buy purchasing shares of the companies involved. Of course, investing large sums of money in order to buy shares of these 30 companies and keeping an eye on the changes in them is not easy for the average investor. Also in the Derivative market, Index Futures can be traded in the Sensex, but it carries high amount of risk.

Index Mutual - An easy way to buy Sensex.

The Sensex-based index fund buys shares of all Sensex companies in the allotted amount. Any ordinary investor can start investing in such a fund by investing a minimum of Five Thousand Rupees or a minimum of Five Hundred Rupees per month. This means that the desire to buy the Sensex can be fulfilled through an Index Funds. Such funds have many advantages. Such a fund provides an opportunity to invest in the shares of the top 30 companies with the highest market value in the stock market. Also, investing in stocks of the wrong companies is not likely to hit investors. Index fund managers are having easier task as compared to other fund managers as they have  to invest in selected stocks only. That is why the costs of such funds are low which indirectly benefits the investors in the form of returns.

The Sensex, which started at 100 in 1978, has so far returned about 16 per cent annually. Simply put, the current market value of an investor who invested Rs 10,000 in the Sensex in 1978 is now more than Rs 50 lakh. Of course, such a person cannot be found because in the year 1978, index fund was not started in our country. Compared to western countries, we came up with the concept of index fund late and even today such funds are not well known to the investors in our country.

Investors can also invest in index funds based on the national stock market index Nifty.

What should investors do?

Every mutual fund investor should have some index fund in his / her portfolio. World-renowned investor Warren Buffett has also suggested investing in low-cost index funds.

Of course, as mentioned earlier, the Sensex has now reached its highest level and the PE ratio of the Sensex has reached 32. This means that the Sensex has become very expensive and one-time big investment should be avoided. Instead, long-term SIPs should be made in such funds. At the same time, if Sensex collapses in the near future, you should be prepared to invest large lump sum amount in the same fund. Given the current volatility in the market, regularity and consistency in investing will be very important.

 An investor who invests in an index fund in this way can proudly say in future -  " Mere Paas Sensex Hai !"

 (The author is associated with Indira Global Business School as a Director)

                          

       

Dr. Virendra Tatake

Director

Indira Global Business School, Pune.