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In the quirky world of equities, risk management was never more critical than now. If you have heard that statement before, don’t blame us for repeating it. Not yet. That’s because investors have learnt a lesson or two in the last few days.

Just check a few trends that we have randomly collated and you will appreciate what we are trying to say. You will also realise how volatile the going has lately become. Take the past one week or so, for instance. Equities have suffered markedly during this period, a trend that has shaken investors considerably.

The indices fell drastically on at least two days (Friday, July 27, and Wednesday, August 1). The last drop, over 600 points, hit the market hard, leading to a further dip in net asset values.

Fund circles suggest that a downturn such as this is probably a good time to take a fresh look at your allocations. The argument they put forward is simple: When the market is down, step up your exposure. That way, you will be able to have a lower average cost of investment.

Fidelity Mutual Fund, meanwhile, has released a statement, suggesting strongly that the funds industry has in recent times seen NFOs cornering all the fresh allocations. Its analysis of the trend points to a few interesting figures: Gross sales of Rs 90,516 crore for the one-year period ending June 29, 2007. Of this, gross sales in existing schemes stood at Rs 68,350 crore, while NFO sales stood at Rs 22,166 crore. At the same time, redemptions were Rs 69,127 crore, marginally more than the sales figure (for existing funds, that is). Net sales were effectively Rs 21,388 crore – which underscores the concern that growth has come mainly on account of NFOs, and at the cost of existing schemes. Mind you, we are discussing “growth” in relation to sales, not assets under management.

What the fund house is trying to say is plain enough; it does not say it in so many words, but the message is clear. The market for new offers is marked by some strange practices. Topping them all is the amazing zeal displayed by investors to buy NFOs.

“World over, the advice given to investors is that the long term performance track record of a fund is one of the key parameters to look for,” Ms Ashu Suyash, Managing Director and Country Head, Fidelity, is quoted in the statement. NFOs are without doubt very important – they help broaden the market, after all. However, this is not to suggest that existing funds should be ignored. Far from it, these need active marketing as well.

We really can’t fault with the argument. Yet, fund houses of all hues keep on introducing NFOs. In fact, there are plenty of NFOs waiting to be launched right now. The last few days have seen some offer documents getting filed with the regulator. We will certainly not take them up one by one and go into their merits. Overall, however, we can safely assume these will be vended quite aggressively.

When was the last time you invested in an NFO? Did you do it because a distributor argued convincingly in its favour? Or, did you think it will really add value to your portfolio? Would you have done better if you had stuck to an existing product? Try to answer these questions and you may yet find the price of being disloyal to your existing funds.

Feedback may be sent to nilanjan@thehindu.co.in

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