Hello Readers!

I hope you are enjoying reading our article and finding it useful for your investment in Mutual Funds. Well, today we are here with a very interesting term in Mutual Funds, and that is NFO or New Fund Offer. If you are an investor, you must have heard this term before, but are you aware of its importance, how it rises chances of good investments to investors, so that they could earn a good profit? If you don’t, it's okay, no need to bother.

Through this blog, we are going to explain to you the concept of NFO (New Fund Offer), its significances, its benefits to investors, why investors should invest in NFO and many more, Read the blog and get to know everything about NFO (New Fund Offer).

What Is NFO (New Fund Offer)? 

New Fund Offer or NFO is the term used to denote, a new mutual fund scheme introduced or launched by a fund house, which helps the fund house to raise capital for purchasing securities. NFO’s functions on the policy of first-come, first-serve basis, hence investor has a limited time period to invest in an NFO.

The offer price for an NFO is generally fixed at Rs 10 per unit, but for a limited time period, hence Investors may purchase an NFO unit of the mutual fund scheme at an offer price, after limited time period expires, the units of the fund can be purchased at an offer price prevailing at that point in time.

Why NFO Is Considered A Good Opportunity? 

NFO’s are new to the market and comprise of cheaper purchasing rates than other mutual funds available in the market, which usually attract the investors towards it, as by investing in an NFO, they get more units, in a low cost. NFO’s are generally compared with IPO (Initial Public Offering). IPO’s are shares, purchased by the investors before they get listed on the exchange. Besides being a low-cost fund, it is advised to investors to decide wisely before investing in an NFO.

Who Should Invest in an NFO? 

There are investors in the market with two kinds of mindsets, first, the one who considers investing in mutual funds is good, when the market is at its peak, and the others who consider investing in mutual funds, when the market is low, as they will get more units in low price. The asset management companies (AMCs) try to capitalize on this mentality of investors. This is why people tend to go after the less expensive NFOs.

Factors One Should Consider Before Investing In an NFO

  1. Fund House Reputation: Before investing in any NFO, it is always advised to the investors, to have value research on the Fund house offering the NFO. Investors are advised to check at the last 5-10 years history of the fund house offering the NFO. This analysis helps the investor to know about the performance and service delivered by the fund house, during markets fluctuating conditions, that is the market’s ups and downs. If the fund households a good record, then the NFO might perform as promised.
  2. Theme of NFO: Mutual Fund Investment sector has moreover 8000, different mutual fund schemes running, with different strategies and ideologies. If an investor, plans to invest in an NFO, it is always advisable, to read and go through every detail and offerings, to understand the fund theme. Like every function has a main attraction, an NFO should comprise of a unique offering that makes it different from other schemes. However, if the investor thinks that the NFO is offering the same as other schemes, then it is better to stay invested in the existing schemes, rather than invest in an NFO.
  3. Funds Objectives: It is necessary for the fund house offering the NFO, to clearly explain its investment process, which it’s going to carry out for the given investment horizon. It is necessary, so that the readers, by reading the fund document, clearly understands how the NFO is going to use the invested money, to raise the returns. If investors are unable to understand the objectives of the NFO, then it shows weaknesses in the investment process.
  4. Risk Factor: NFO’s are new to market and do not have any history of past performance, so it's bit difficult to know about the risk associated with it, one cannot evaluate its asset allocation in the market, also it’s difficult to know, how the fund manager intends to utilize your money. Hence, investing in an NFO should be based on an investor's risk profile.
  5. Investment Horizon: NFO’s may be associated with a specific lock-in period, which may exceed your investment tenure, thus its better to check the fund's details, whether it contains any lock-in period or not, and then decide your investment tenure accordingly. It's difficult to analyze the risk associated with the NFO, so do choose your investment tenure wisely, that suits your risk profile.
  6. Minimum Subscription Amount: NFO’s usually offer a minimum subscription amount to the investors, which generally ranges from Rs 500 to even Rs 5,000. You can easily tally the amount that you can afford to invest in an NFO, with the minimum subscription amount of NFO, if minimum subscription amount is higher than what you can spare, think twice before you invest. Well, you have one more option, better say, the best option, invest through SIP (Systematic Investment Plan), in an existing high-performing mutual fund scheme.

How to Invest in NFO? 

Well, there are two ways through which, you can invest in an NFO:

  1. Investing in NFO through a broker: Contact an authorized broker, from a reputed investment company, the broker can help you complete all the formalities regarding applying for the NFO and filling the necessary forms. They also provide details regarding all the necessary documents, to be submitted along with your application. A broker serves as authorized mediators between a company and the public, the benefit of applying for NFO through a broker is that you get door-step services.
  2. Investing in NFO through your online-trading account: If you are an investor of mutual funds, you would have an online trading account, well your online trading account, can be used to invest in NFO as well. You can also use your online trading account to track the net asset value or NAV of your investments.

Benefits of Investing In NFO

  1. NFOs offer new and unique investment ideas or themes.
  2. Investors looking for liquidity can invest in open-ended NFOs, as you can purchase or sell your NFO units anytime.
  3. Most NFOs are launched during the bull of the market. Investors investing in NFO’s purchase more units at low cost, during the bull market.
  4. An NFO can give you new opportunities to diversify your investment portfolio.

As of now, you are with every key detail of an NFO, you do know about its features and benefits, and how it is useful to the investors, thus plan your investment in an NFO, until its offer period overs. Meet a financial advisor today only or contact a mutual fund broker, they will help you decide and plan your investment in an NFO (New Fund Offer).

You can also contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.

Happy Investing!

(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).