I am amazed, sometimes stunned, to see people chasing after NFO mutual fund (new fund offering). As it stands, the financial market is extremely volatile, thanks to the surge in crude oil prices to the seemingly impossible high of $ 140 a barrel. This, coupled with the scarcity of food grains, has seen the predictions of many finance gurus crumble to dust. People have been hit hard by inflation all over the world, but there is this rare breed of people who don't wait to reason before they jump in to buy an NFO. They do it because the same is offered at its base price … so what?
Let us go back two years. I've seen people brag that the mutual funds they bought at a base price of Rs. 10 per unit gave them a 20% return on the base price over the course of a year. # 39; a year. The value of the same had become Rs.12. I don't wish to tone down their happiness, but I had purchased these same funds 8 months after them at Rs. 11 each. The price of the same is now Rs.12.
Let's do a simple math. Over a period of 12 months, the gentlemen in question had achieved a net gain of 20% on their investment, or: 1.66% per month. My earnings were 10.9% over a 4 month period, or 2.72%. It does not require a financial assistant who earned more over a certain period of time on the amount invested by them. Yet people continue to hunt the NFO. They are convinced that they can make a kill by buying the same at its base price.
New funds take some time to gain a foothold in the market, regardless of the value and reputation of the fund manager. This period is generally between 6 and 9 months. We know that the new funds released by the main fund houses show less good performance during the first 12 months. It is better than if one observes an initial offer for a few months and studies their performance before buying it.
Back to the present. Quite a few NFOs were released in January 2008 and since I won't be doing it on my part, I didn't buy them. A close associate of mine had purchased 100 units of one of these funds at the base price of Rs 10 per fund, making his total investment in that fund equal to Rs 1000. The markets shifted and with him the funds mutuals too. A few days ago, towards the end of June 2008, I had bought 100 units of the same fund at a depreciated price of Rs.8 per unit, so my investment is only Rs.800 .
Assuming that in the near future the markets will pick up and by the end of January 2009 this particular fund will have a market value of Rs. 11 per unit. Can someone please do the math for me?