For a common person new to Mutual fund industry NFO is something unknown. New fund offers (NFO) are the new schemes launched by the Asset management companies (AMC) for general public to invest before its daily transactions are started. These offerings are made so that the fund houses can buy securities available in market example bonds, shares etc.
WHAT ARE THE FEATURES OF NFO?
- These are open ended schemes that an investor can start and withdraw the investment as per the own choice
- However, closed-ended schemes are fixed tenure schemes and are periodically offered by companies but after their maturity, NFO provides new options to investors to invest in either new asset class or new theme
- But, closed-ended schemes are listed on stock exchange to provide option to investor to exit before maturity
- NFOs are offered for a short span of time. Thus, investor has to make decision whether or not to invest during that time
- The collected money is reinvested in the instruments that help in achieving the objective of scheme
- New schemes are offered by companies when a new product is designed which is different from existing one. It could be different in the type of funds in which it invests
WHAT ARE THE FACTORS THAT NEEDS TO BE EVALUATED BEFORE INVESTING IN NFOs?
- Money should only be invested if the objective of the scheme is in matching with your goals and risk appetite. This information can be gained by reading information document. Also, the experience and qualification of the person responsible for allocation of allotted investment should be considered
- People are mostly less excited about NFO’s as mostly similar kind of fund is already available in the market. Thus, people prefer to invest in fund which already exists in market as their results can be analysed
SHOULD YOU INVEST IN NFOs?
Decision for investing in a particular NFO depends on the following factors:
- The objective of the scheme is in matching with your goals and risk appetite. This information can be gained by reading information document
- Whether team driven approach is followed by fund manager or not
Performance of similar schemes available in market
- If you are willing to take a chance on a new platform where fund manager has a fresh approach which can be better in returns due to small size of the fund
- NAV under this fund starts with Face Value of INR 10 which may or may not give you edge over other funds
- These days because of strict regulation by SEBI, NFOs are not frequently launched; as company has to prove that new fund they are offering has new flavour which is not available in schemes available in market
- NFOs for a fund manager is an opportunity to perform better due to size of the fund
- Fund management expenses under these funds are bit higher than an established mutual fund scheme because of the size of the fund
- NFOs are normally used for close-ended series. Where fund house launches a particular fund for a particular duration and then after the maturity they launch a new scheme
- Sometimes NFOs are also launched to merge benefits of some of the existing schemes
- Although psychologically still people like to invest in fund whose NAV start from INR 10 as it gets you more number of units (which anyway does not matter) but still people are willing to buy it at INR 10
- Some fund houses use this opportunity to raise more money from market as they are unable to raise through existing funds
- Normally NFOs in debt fund can be seen every week. But, NFO in equity is quite rare in form of FMP, Capital Protection fund