Invested in narrow theme? Exit if you can't take active calls

The recent market downturn has impacted mutual funds, especially recently launched equity new fund offers (NFOs).

- SARBAJEET K SEN

In recent years, fund houses have introduced several thematic and sector-focused schemes, attracting significant inflows. Many of these funds are now facing losses, with net asset values (NAVs) falling below the issue price.

"Nearly 90 per cent of the NFOs launched in the past two quarters fall into sectoral/thematic or passive index fund category. The impact of the recent sell-off has been seen across themes like defence and public sector undertakings (PSUs) that attracted major inflows before the broad market correction. Factor-based funds like momentum have seen a drawdown of as much as 20 per cent in the past six months," says Anil Rego, founder and chief executive officer, Right Horizons.

Risks in NFOs

NFOs come with inherent risks that investors should have considered before investing. Unlike established funds, they lack a track record. Smaller assets under management (AUM) can lead to higher expense ratios in the initial years, affecting returns.