IDBI Mutual Fund Launches NFO

Despite the fact that the Indian equity markets are facing some testing times, IDBI Mutual Fund is coming out with a new fund offer (NFO). The fund house has announced the launch of IDBI Tax Saving Fund, an open-ended equity-linked saving scheme (ELSS). The scheme offers income tax benefits under Section 80C.

The product is designed keeping in mind investors who are seeking capital appreciation as well as tax benefits through their investment. It will have a lock-in period of three years. However, even those investors who do not want the tax benefit can choose the scheme as a medium-to-long term equity investment like other equity diversified instruments.The NFO will open for subscription on August 20, 2013 and close on September 3, 2013. The units will be available at par (Rs 10) during the NFO period. The scheme will reopen for continuous sale from September 2013.

The investment objective of the scheme is to provide investors with an opportunity for capital appreciation and income along with tax deduction. It is also important to note that the returns generated from the scheme after the lock-in period would not be taxable.

We, at Dalal Street Investment Journal, are of the opinion that NFOs are usually good for investment as they are available at par value. However, the expense ratio should be looked at the time of investment. Apart from these factors, other schemes with good performance history are available in the same category.

While it is true that other funds of IDBI MF are yet to provide impressive returns, it must be noted that funds usually need a 3-5 year period before they start generating good yields. Considering the current market levels, we feel that investors with a high risk appetite can go for this scheme. Investments made in tough scenarios typically generate better returns in the long term. Though it is not possible to time the markets, it is not a bad idea to start investing in a trough.