Skip to main content

Mutual Fund IPOs

When there are no stock Initial Public Offerings(IPOs) hitting the market, Mutual Fund IPOs seem attractive to investors, Since they often tend to think of Mutual fund IPOs in the same vein as they do of stock IPOs. However, there are some fundamental differences that they need to take into consideration. The price of a stock is based on its supply and demand. IPOs often get listed at a premium because when a stock opens, its demand is sometimes much larger than its supply. This is not true for mutual funds, where a separate unit is created at the time of investment, which is destroyed at the time of redemption.

Thus, the supply of mutual fund units is unlimited and so any appreciation in the value of a Mutual Fund's NAV can never be due to an increase in the demand for a fund's units. Moreover, in case of funds, your gains depend on how well the fund manager invests.


All things considered, it is generally a good idea to stay out of Mutual fund IPOs. A new fund is an untested entity without any track record. Your investment call will have to be made purely by looking at the fund manager and the Asset Management Company(AMC). Another issue is that of a possible opportunity loss. Your investments may be locked in for up to a month. This money could instead be kept in a liquid fund for a month and then invested once the fund opens for daily sale and repurchase post its IPO.

There are some exceptions to this. An obvious one is closed-end funds. Even though these are no longer in vogue, there are special funds called fixed maturity plans, which are similarly structured. If you want to invest in one of these, then the IPO may be the only option available.

Investors need to understand that fund IPOs are purely a marketing device that creates some excitement. AMCs always communicate strongly during an IPO. A discerning investor should absorb this information carefully and invest later when the fund opens for sale and repurchase on an ongoing basis. This is the same case for GOLD Funds also. They just reflect the international price of GOLD prices at prevailing international rate. All the gold mutual funds perform more or less the same. Investors can purchase these units on an ongoing basis.

Comments

Popular posts from this blog

Your Bill Amounts Are Going To Increase From June 1, 2016

Service tax is a tax levied by the government on service providers on certain service transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into existence under the Finance Act, 1994. Union Finance Minister, Arun Jaitley, in his budget announcements proposed to impose a cess, called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The present rate of service tax will be hiked to 15 per cent from June 1, 2016, from 14.5 per cent. Take a look at what gets expensive:



Phone Bills: Your phone bills are going to go up. So, pay a good 15 per cent now on service tax on phone bills.

Restaurant Bills :If you are dining in a restaurant that already has service tax applicable, you are going to pay more on your eating out. Though 0.5 per cent on a single bill may not mean much, frequent diners may end-up paying a lot during the year.

Travelling: You will have to pay more for air travel, as there is a service tax on tour operators and travel agents.

What is Gold ETF - Gold Bees, Reliance Gold,Kotak Gold

What is Gold Bees or Gold ETF?

Gold ETFs are open-ended mutual fund schemes that will invest the money collected from investors in standard gold bullion (0.995 purity). The investors' holding will be denoted in units, which will be listed on a stock exchange.They provide returns that would closely track the returns from physical gold in the spot market.

An investor can buy and redeem the units either directly from the mutual fund or from the stock exchange.Presently there are many Gold ETFs traded in NSE India. Some of the listed Gold ETFs are GoldBees,Reliance Gold,Kotak Gold,UTI Goldshare



Why choose Gold?
Gold holds its own in any investment evaluation on its strengths as a hedge against inflation, value in the event of political uncertainties and its traditionally negative co-relation with other asset classes such as stocks, fixed income securities and commodities.

The value of goods and services that gold can buy has remained stable unlike currencies that have seen significant…

What is NIFTY BEES - ETF?

NIFTY BEES - is the first ETF (Exchange Traded Fund) in India, which seeks to provide investment returns that closely correspond to the total returns of securities as represented by the S&P CNX Nifty Index. It gives you the most diversified exposure at lowest possible unit size. Approximately value of Nifty bees will be 1/10th value of the prevailing Nifty price.

ETFs are one of the latest financial innovations and any new concept takes time to be known widely. Globally it took more then five to seven years before it could be of any significant size. In India, it was introduced with Rs 21 crore in size , a fraction of the mutual fund industry, it has come far with more than Rs 700 crore in size with six ETFs.




The Nifty BeES also scores over other index funds due to its low tracking error and expense ratio, apart from easier tradeability as it is listed in the NSE. One can also consider doing an SIP in Nifty BeES.

Some of the reasons to invest in Nifty Bees : Investing in Exchange …