It doesn?t require a high amount of research to understand that a contemporary consumer prefers to purchase something that is new, or ?latest? ? as a new offering is often referred to. Be it clothes, electronic gadgets, cars, or even vacation locations and restaurants, we always look to pick something that is new. No one wants to have anything to do with something old, even if it?s just a few months old. The new attracts, and the new sells.
This buyer behaviour has made its presence felt in the mutual fund industry as well. New funds are lapped up with gusto despite all kinds of warnings and advices from investment analysts like me. There is something about the new that seems just too hard to resist. Of course, I still maintain that investors should by and large shun new funds. I know this is hackneyed advice, but when on the topic of new funds, I have to say it again simply because a new fund is in no way useful to an investor. A new fund has no track record; an investor has no way of knowing how it will perform. Moreover, most new funds are not even new, they are just clones of existing funds marketed in a different way. Investors should pick up an existing fund with a good performance record and stay put in it.
But that doesn?t quite happen. Investors buy new funds and fund companies keep realising more and more of them. At present, there are 12 fresh equity funds in the pipeline, as listed on Sebi?s website. Fund companies have registered these funds even after the abolishment of the entry load, which proves many soothsayers wrong who predicted the downfall of the mutual fund industry. The fact remains that new funds will always be the best way for a fund company to earn money.
A couple of years ago, fund companies had a lucrative commercial reason to pitch new funds. In those days, fund companies could deduct a fairly hefty ? up to six per cent ? part of investors? money invested in a new fund for expenses like advertising costs and sales commissions. However, now Sebi has shut off such deductions ? first in the form of issue expenses and then the entry load. Sebi took these steps to make mutual fund investments easier and more transparent for investors. These investor-centric moves have rung in the fact that if investing in funds is going to be better for investors then they will invest more and more into them. Particularly, with no entry load, investors will buy new funds even more. Hence, there will always be money to be made, albeit lesser than before. This is the belief that seems to have pushed companies to keep launching new funds.
Of course, innovative marketing measures are still the order of the day. A to-be-launched fund listed on Sebi?s website goes by the name of Ninja. For the fund, Ninja is an acronym for Nifty and Nifty Junior Advantage. A Ninja by definition is a stealthy warrior trained for assassination, illusion, espionage and sabotage. But to a lay investor, a Ninja would be a cool Japanese warrior who would fight the devils in the stock markets in search of the best investment opportunities. A very nice gimmick, I must say. And if enough investors fall for it then it will be a successful gimmick as well. But a gimmick is all it will be. If you ask me, I?ll say the same thing once again: don’t be enticed by the ?latest? when it comes to mutual fund investments. Over here, the well performing oldies rule!