NFOs galore caught investors' imagination in 2023

livemint.com:

NFOs. Fuelled by a generally optimistic market sentiment, mutual funds seized the opportunity to launch a variety of schemes designed to cater to a broad spectrum of investor preferences. Before the conclusion of this year, around 228 NFOs, spanning active and passive schemes in both equity and debt categories, including open-ended and close-ended schemes, have attracted investments exceeding ₹50,000 crores.

This suggests a significant influx of both new and existing investors seeking to capitalize on the current market upswing. In 2023, the Indian stock market experienced a notable bull run, with major indices such as Sensex and Nifty recording gains exceeding nearly 20 per cent. This upswing in the market significantly bolstered investor confidence and increased their willingness to take on risk, leading them to explore alternative investment avenues such as NFOs.

Yet, could this market fervour be indicative of investor greed rather than optimism? The attraction of rapid profits has enticed multitudes to invest in NFOs lacking established track records. The peculiarity in investor behaviour becomes more pronounced as individuals overlook asset management companies (AMCs) boasting a phenomenal long-term track record of delivering substantial returns over the past decade or more. The temptation of fast profits has historically led to more harm than benefit.

This is exemplified by an anecdote frequently recounted by Howard Marks, Co-founder of Oaktree Capital, to illustrate the perils of risk in investing. Marks shared, “I tell my father’s story of the gambler who one day hears about a race with only one horse in it, so he bet the rent money. Halfway around the track the horse jumped over the fence and ran away." Even