Mutual Funds NFO: Planning to invest in a new fund offer?


While existing funds have years of chronicle, one can’t guess how an NFO would perform. Investors in an NFO haven’t got much to depend upon, except the schemes’ offer letter. New Fund Offers (NFOs) are generally introduced when the markets do well.

This is often the time when more people are interested in markets, allowing investment trust companies to create the foremost of it. Investors are often drawn to new fund offers (NFOs) from open-end fund companies because they are available cheaper.

They also hope that the NFO may offer better returns than the already existing funds within the future. However, experts say that one should take caution before deciding to speculate in an NFO. According to Vikas Singhania, CEO, TradeSmart, while the worth is low, there are certain risks of investing in an NFO that one should understand.

“An NFO is attractive to an investor thanks to its low price, however, it carries certain risks with it. While existing funds have years of the log, one can’t guess how an NFO would perform. Investors in an NFO don’t have much to depend upon, except the schemes’ offer letter.

An existing fund has several years of record and incorporates a portfolio that may be dissected to work out if it matches the investors’ risk, return, and volatility profile. It should keep you guessing about the stocks to be purchased by the fund.

“It doesn’t talk in specifics and might leave an investor guessing on what stocks are purchased within the fund. Since the NFO doesn’t have an in-depth diary of its own, the investor will need to depend upon other funds within the AMC to benchmark their expectation,” said Singhania.

Should you invest?

It is risky to speculate in an NFO. But then, there’s nothing within the markets that comes with no risk. So one should compare both the benefits and downsides before deciding to take a position or to not invest in an NFO. “NFOs can give competitive terms to draw in new investors.

But investors must do their diligence before investing: in terms of the funds prior performance, and therefore the asset mixture of the NFO and the way that matches with their own risk and return appetite,” Utkarsh Sinha, director of Bexley Advisors.

“One advantage of watching NFOs is that it can answer the flavor-de-jour and be constructed to reply to the foremost immediate opportunities prevailing within the market. It becomes difficult for existing funds to rebalance aloof from their traditional mix to create the foremost of a brand new trend.

For example: if you would like to participate within the potential returns of new-tech IPOs, you’ll probably just go that route via an NFO,” he added.

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