At Zerodha, we spend quite a bit of time educating investors. We constantly share things and answer queries from investors on Varsity, Z-Connect, Trading Q&A, and the Zerodha YouTube channel & podcasts.
It's still raining NFOs. In 2020, there were about 50 odd NFOs as fund houses rushed to capitalise on the market rebound. But just 7 months into 2021, we've already crossed 50 NFOs and counting. What's surprising is that these NFOs have collected over Rs 30,000 crores. And it looks this isn't stopping anytime soon, given that AMCs continue to file for new fund launches. The last time we saw so many NFOs was probably in 2008.
Even to this day, quite a few investors confuse NFOs for IPOs and expect listing gains. But NFOs and IPOs are two different things. In very simplistic terms:
IPO: When a private company wants to raise capital, it sells shares to the general public.
NFO: When an asset management company (AMC) wants to launch a new scheme, it launches a New Fund Offering (NFO) and sells units to investors. It uses the money it raises to buy the underlying securities (stocks, bonds, commodities) in the new fund.
NFOs are heavily marketed, especially in bull markets like the current one. They can be tempting, but not all NFOs are worth investing in. Even today, NFOs are mis-sold with a pitch that the units are available for cheap at just Rs 10, particularly by banks & wealth managers. Investors fall for the pitch without realising that Rs 10 is just a number and doesn't mean anything.
A few things to keep in mind about NFOs:
Markets near lifetime highs
The large, mid, and smallcap indices are all trading at or near their lifetime highs.
And this is the time when some investors start getting nervous and start tinkering with their investments or stop their SIPs. But that would be a huge mistake.
The thing is, markets keep making fresh highs all the time. This image shows the number of times Nifty made new highs each year. So, just because the markets hit new highs doesn’t mean they have to fall. In fact, strong momentum tends to persist if you observe the image.
But in any case, even if you were to time the market, i.e., sell at the peak and buy at the bottom, you need to be right twice. As much as we humans like to think we're good at predicting things, we aren’t good at it. And even if you time the market perfectly, you aren't guaranteed to beat a simple SIP.
Most of us will be saving for our long term goals like retirement, which is decades away. Reacting to short term movements is a sure way of hurting your odds of reaching those goals. The best thing for you as an investor should do is:
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Speaking of personal finance, there are a lot of misconceptions around it. Personal finance is uniquely personal, and there are no easy answers. What works for someone might not work for you. Most people assume personal finance is all about investing; it’s not. Investing is just a small part of it.
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