Imagine being among the first investors to invest in a fund with a new theme and objective at a discounted price. This is the power of a new fund offer (NFO).
NFOs help investors participate in new mutual fund launches at an introductory price and benefit from potential growth opportunities. However, unlike existing funds, NFOs have no track record. Therefore, you need a smart NFO investment strategy to ensure you get the expected returns. A well thought out approach helps to make the most out of its introductory price and benefit from future growth opportunities.
Discussed below are some important things you should know before registering for an NFO, including evaluation methods, associated risks and strategies for selecting the right fund.
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NFOs can be offered for both open-ended and closed-ended mutual funds
Closed-ended funds can be purchased during the NFO period and are eligible for redemption after maturity, providing investors with a predictable exit strategy. Open-ended fund NFOs allow investors to purchase and redeem units at net asset value (NAV) even after the initial NFO period has ended.
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Risk factors
New fund offer in mutual funds is launched by an AMC for the first time to raise capital from the public. The funds collected are invested in bonds, securities, shares, and other investment options.
NFO investments can be risky as there is no track record of the fund’s performance, and the potential of returns is uncertain. Moreover, the sector specific funds might be affected by fluctuations in that particular sector.
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Every NFO comes with an offer document
This document contains all the critical information about the scheme, such as its objective, strategy, benchmark index, asset allocation pattern, level of risk, liquidity, and fund manager profile. It also details statutory and other relevant data about the AMC that launches the fund.
Always read the offer document carefully before investing in any NFOs to ensure that it aligns with your expectations, investing style, and risk appetite.
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Evaluating an NFO
Even though NFOs are relatively new, there are ways to assess their potential:
- Read the offer document provided by the AMC in detail to understand the fund and its provider.
- Compare the NFO with similar schemes already launched by the same fund house. Evaluate factors like returns, risk parameters, fee, exit load, etc. before investing.
- Check the fund manager’s track record, experience, and investment philosophy.
- NFOs can invest in different asset classes such as equities, debt, gold, etc. Each class has a different risk profile and risk/return profile. So, understand the underlying asset class and how it fits into your mutual fund portfolio.
How can you invest in an NFO?
Investing in an NFO is as simple as investing in a mutual fund online. The steps are:
- Visit the fund house website.
- Click on “Mutual Funds”
- Browse the NFO list and select the one you want to purchase.
- Complete the e-KYC process (if not done before).
- Now fill out your investment details. These include the amount you intend to invest, payment mode, etc.
- Click on the “Invest” button to initiate the payment process.
- You may receive an OTP or one-time password on your registered mobile number or email ID. Enter this OTP to confirm the transaction securely.
You can also purchase NFOs through mutual fund investment apps. All you need to do is download the app of your preferred fund house, register yourself by following the e-KYC process, and then invest in the NFO through the same process above.
As a new fund, NFO demands more research and attention than established ones. To avoid costly mistakes, it can be helpful to consider the factors highlighted above.