What is NFO in Mutual fund ? Should I invest in NFOS ? Are NFOs Cheaper ?
NFO stands for "New Fund Offer" in the mutual fund industry. It is the process by which a mutual fund house launches a new mutual fund scheme for subscription by investors.
During an NFO, the mutual fund house invites investors to subscribe to the new scheme and raise money for the same. The NFO is usually open for a limited period of time, after which investors can buy or sell units of the scheme on an ongoing basis on the stock exchange.
Investors who subscribe to the NFO during the initial offering period are allotted units of the new scheme at the initial offer price, which is usually set at Rs. 10 per unit. After the NFO period is over, the units of the new scheme are listed on the stock exchange and can be bought or sold by investors at prevailing market prices.
NFOs are often launched by mutual fund houses to take advantage of investment opportunities in a particular sector or asset class or to cater to the specific investment needs of investors. Investors should carefully evaluate the new scheme's investment objective, portfolio composition, and track record of the fund house before investing in an NFO.
Deciding whether to invest in NFOs (New Fund Offers) requires careful consideration and evaluation of various factors. Here are some points to help you make an informed decision:
Investment Objective: Consider whether the investment objective and strategy of the NFO align with your investment goals and risk tolerance. Evaluate the asset allocation, investment approach, and the potential for returns. It's important to assess the merits of the NFO and determine if it fits into your overall investment portfolio.
Track Record: NFOs are typically new funds without a historical track record. This makes it challenging to assess their performance or the capabilities of the fund manager. In contrast, existing mutual funds have a track record that can provide insights into their performance and consistency over time.
Cost Considerations: NFOs are not necessarily cheaper than existing mutual funds. The cost structure, including expense ratios and other charges, can vary among different mutual funds, regardless of whether they are NFOs or existing funds. It's essential to review the scheme's offer document and compare the costs with other similar funds in the market.
Diversification: Existing mutual funds often have a diversified portfolio of securities due to their longer existence and larger asset base. This diversification can help reduce risk compared to new NFOs that may have a smaller asset base and limited investment holdings. However, this may vary on a case-by-case basis, and some NFOs may also offer diversification benefits.
Market Timing: Some investors are attracted to NFOs because they provide an opportunity to invest in new funds at the initial stage. However, it's important to note that market timing is a challenging strategy, and it's difficult to predict how a new fund will perform compared to existing options. Timing the market can be risky, and it's generally recommended to focus on long-term investment goals rather than short-term market trends.
In summary, investing in NFOs should be based on a thorough evaluation of the fund's investment objective, track record, risk factors, and fit within your overall investment strategy. It's advisable to consult with a financial advisor who can provide personalized guidance based on your specific financial goals and risk profile.
