Everything About New Fund Offerings (NFO)

While existing mutual fund schemes have years of track record and data on annualised returns, investors can't guess how a new NFO or New Fund Offer would perform. You don't have much information to rely on as an investor, except the MF scheme-related document. So, here's all you need to know about NFOs and things to keep in mind before investing.

What are new fund offers?

A new fund offer is the first-time investment offer for a new mutual fund scheme launched in the market by asset management companies (AMCs). A company uses a new fund offer to raise capital from public investors for buying securities like equities, bonds, capital assets, etc for the new fund.

With NFOs, mutual funds allow investors to park funds in the company for the first time. Here, the AMCs keep the new fund offers open for a specific period where investors invest in the fund units. The face-value/issue price of each unit of the fund is generally kept Rs.10. by AMCs.

When the AMC closes the NFO, investors can purchase MF units at their current net asset value (NAV). Investors stand a chance to invest in the fund at a very early stage and can collect gains as per the movement of NAV of the fund.

Additional Read - How to Invest in NFO?

Things to consider while investing in new fund offerings

#1 Fund house reputation

Before parking funds in an NFO, you must conduct a thorough background check on the fund house you are investing in. The history of an AMC can significantly impact how the launched NFO will potentially perform. You must check if the fund house has a good track record in the MF industry. Understand how the fund house previously performed during market ups and downs.

Correspondingly, you must also review the background of the portfolio managers actively managing your MF scheme.

#2 Fund objectives

When you’re looking to invest in an upcoming NFO, it's prudent to get a good understanding of the fund's objectives. In doing so, you'll know the risk factor, asset allocation, anticipated returns, liquidity, and more of your scheme. Since NFOs don't have a performance record, their scheme-related documents spell out the investment process. The offer document helps you understand what the fund manager will do with your money.

#3 Theme of NFOs

The market accommodates n number of MF schemes. Therefore, you must read the scheme's fine print to figure out the fund's theme, especially when you're investing in an NFO. The scheme's investment theme should differ from what the existing MFs offer and yet be sustainable enough to collect returns.

#4 Investment horizon and minimum investment

Typically, NFOs have a minimum subscription amount ranging typically between from Rs. 500 to Rs. 5000. This means, you may be required to put down a specific sum while investing. If it’s an open-ended NFO you’re investing in, you can opt for a systematic investment plan (SIP).

Similarly, NFOs can also come with lock-in periods between 3 and 5 years. Here, you'll stay invested for the specified tenure. If the term aligns with your investment horizon, it's a smart choice to invest.

Additional Read - Understanding Mutual Fund Terminologies

Over to you

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