The Role of Launch Date in Mutual Fund Selection

What is a Launch Date

The launch date refers to the date on which a mutual fund scheme officially commences operations following unit allotment. It is mentioned in the Scheme Information Document and all the regulatory filings with SEBI.

The date cannot be mistaken for the New Fund Offer (NFO) period that comes before this date. In the NFO, the investors subscribe to units of the scheme at a starting price called the initial offer price and typically ₹10 per unit. Once the NFO has been closed and the units have been allotted, the scheme officially commences operations on the designated launch date.

The date of inception is the initial date on the calculation of historical returns and identification of the operating history of the scheme to be used in regulation reporting.

Why Launch Date Matters

The launch date provides context regarding the scheme’s operating history and available performance record.

1. Performance Evaluation

   Established schemes with a longer track record provide more data for analysing performance across market environments, such as bull and bear markets. Recently launched schemes may not have sufficient historical data and therefore do not provide long-term performance information across market cycles.

2. Fund Maturity

   The date when the fund was launched assists in estimating the age of the fund, which can be important when examining the dependencies of the size of assets, stability of the portfolio, and operational maturity. The scheme’s track record can be factored into the process of assessing the growth of the asset, the development of the portfolio, and the possibilities of historical data presence.

3. Comparison Benchmarking

   A track record of at least three to five years is generally considered meaningful for evaluating performance consistency across market conditions. This period provides a clearer understanding of how the fund has responded to various economic conditions.

Launch Date vs. NFO Period

The NFO period and date of launch are two different yet related. It is a purchase window of 15 to 30 days wherein investors are allowed to purchase units at the starting offer price, which is usually considered as an NFO. The scheme commences operations after unit allotment and fund deployment.

On open-ended schemes, the scheme can continue to be subscribed to continuously and redeemed at a rate of Net Asset Value (NAV) after the introductory date. There are some closed-ended schemes and Exchange Traded Funds (ETFs) that can be listed and traded on stock exchanges. From that point onward, NAV is computed on each business day based on the market value of the underlying portfolio rather than the initial NFO price.