Welcome to the (financial) jungle!
Tata Mutual Fund (Tata MF) has recently announced its New Fund Offer (NFO) of “Own a Piece of India”.
Let’s dissect this Tata Mutual Fund NFO and see if it deserves your money.
Highlights of the Tata Mutual Fund NFO
This umbrella theme comprises of 5 NFOs and 1 Existing Scheme.
The 5 New Funds are:
- Tata Banking and Financial Services Fund
- Tata India Consumer Fund
- Tata Digital India Fund
- Tata India Pharma & Healthcare Fund
- Tata Resources & Energy Fund
The 6th fund under the umbrella is the Tata Infrastructure Fund. This is an existing scheme from Tata MF.
The 5 new funds are all sectoral funds. The infrastructure fund too, as the name suggests, is a thematic fund. Together, they represent the potential growth areas of the Indian economy. As the fund house says, you too can “own a piece” of this growth story.
Further, you can create your custom diversification across these sectoral and thematic funds.
You can decide which of the above funds you want to invest in and how much, subject to a minimum of Rs. 5000 per scheme. You can do this all by giving a single cheque and a single application form.
The thing to understand about Sectoral or Thematic Funds
In a typical diversified equity fund, which can invest anywhere, the fund manager based on his research and understanding decides in which sectors and stocks to invest and how much.
However, in case of sectoral funds, you as an investor have to take a call on which sector you believe will do well and thus invest in that sector through a sectoral fund.
As we understand, mutual funds are meant for investors who do not have the time, inclination or large sums of money to build their own stock portfolios. And hence, a mutual fund is a method to build this exposure to stocks or other investments through professional management with even small sums of money.
So, now the question is on what basis are you going to decide the sectoral allocation. Tata MF is not going to give any help in choosing the sectors and the allocation.
Hence, the sectoral bias of the funds also makes this NFO an unusually HIGH-risk proposition.
Many Sectoral Funds is equal to One Diversified Equity Fund
The NFO documents emphasise the fact that each of the sectoral indices have delivered better performance than a Sensex or a Nifty. Hence, investors should consider choosing these sectors as they represent the best of the opportunities that will arise because of India’s economic growth.
However, it would be important to understand that a portfolio with many sectoral funds is as good as a diversified mutual fund. A diversified equity fund typically holds stocks from multiple sectors.
In fact, a diversified equity fund has far more opportunities available and no restrictions to a particular sector. This gives the diversified funds greater flexibility to find and invest in the best investment opportunities.
From a performance point of view, while some of the sectors at one time could deliver higher performance, there could be others lagging behind. On the whole, the returns are going to average out. Most likely, the portfolio of many sectoral funds will deliver a return similar to a diversified equity fund which invests across sectors.
Why do you need new funds?
Do you know Tata MF has 13 existing equity and equity oriented hybrid schemes?
As an investor, the question that you should ask Tata Mutual Fund is that why is it not asking your money for its existing schemes which at least have a past track record to speak about? Why is it floating new schemes and taking bets with your money on something that has nothing to show so far?
Yes, I notice that there is an existing scheme, Tata Infrastructure Fund, being pitched too along with 5 NFOs.
You would care to note that interestingly, the 6th scheme, which is an existing scheme with a track record, invests or can invest in almost all the sectors that are being offered as NFOs. Don’t see a point at all in launching 5 new Funds.
Is this to benefit from the Rs. 10 NAV gimmick?
I am afraid that you are probably going to be lured with the Rs. 10 NAV pitch. I still find several new investors carrying this misconception that a Rs. 10 NAV is cheaper. Don’t fall for it, please.
An existing fund with a better track record deserves your money than this new fund.
What’s SEBI doing?
I am very surprised. On the one hand, SEBI says that mutual fund houses should reduce the number of schemes they have, and on the other hand, it approves a new fund offer such as this.
Final Verdict
Overall, the Tata MF NFO of “Own a piece of India” just adds to the confusion. As I said, welcome to the jungle!
Unless you have some magical powers to find out which sectors are going to do well, you are better off with an existing diversified equity fund.
As far as the convenience of a single application with a single cheque is concerned, you can use MFU India’s facility and invest in upto 5 funds across the industry with 1 cheque and 1 application form.
This New Fund Offer has nothing new in it. Avoid it!
Nice summary of upcoming NFOs from Tata stable. It is really curious and confusing that even Tatas would fall for this kind temptation of communicating to customers about Rs. 10 NAV or “at par” NAV. Or rather, is it to allocate more expenses in the first year in the guise of “initial promotional expenses” and to give more commission to distributors out of first year TER – amortized or not.
As a prudent investment philosophy, one should avoid any thematic or sectoral fund as they are like ‘flavours’ of the month and cannot keep its consistency in terms of performance and outlook both.
It would have been better if your post had given some glimpse of past performance of a few schemes from Tata MF to give a more clear picture of the performance of the fund house as compared with other leading MFs.
Dear Mr. Garg, Thank you for reading and making such a relevant observation. I note your point about comparing performance. Thanks for the suggestion. Regards
At the onset a BIG Thank you for your EXPERT straight forward advice/comments-deeply appreciated. You have given a v.clear analysis & explained why one should not go for a particular new NFO. Excellent way to justify why not to invest in a thematic new MF when better diversified ones already existing. I appreciated v.much the concept of CAN which I’m sure is not opted by many investors. Thanks keep adding new developments and analysis and guiding investors where to invest their hard earned money which can grow smoothly without much risk & monitoring over say 3-5 years. keep us posted from time to time pref. by e-mail on best/safe investment opportunities with your expert analysis as this will help investors invest prudently and in a much better way rather than being carried away by the “noise” or msgs. from mf agencies etc.
Dear Pervin, Thank you so much for the feedback. It motivates us to keep doing our work. Regards,