A new fund offer is a type of mutual fund. NFO is the initial subscription offer made by an asset management company (AMC) for a new scheme. The money raised so from the general public is then invested in various securities such as shares, government bonds, and others from the market, in line with the scheme’s investment objective.
While evaluating whether to subscribe to an NFO, one should carefully watch over various parameters before making any decision.
While one may be able to subscribe to an NFO at the NAV of Rs. 10, each subsequent transaction after a new fund offer closes would be at a price linked to An investor should do a detailed analysis of the new fund offering. Before subscribing an NFO, following are the several aspects that should be kept in mind:
Track record of the fund house: As the fund is new in the market, one should check the track record of the fund house. It would help if the fund house has a history of managing mutual funds for say 5 to 10 years. A shorter period makes it difficult to assess the track record of the fund house.
Fund Theme: Each NFO has a different theme or investment objective. At the same time, there could be ample number of mutual fund schemes with a similar theme that are already available in the market. It would be better to do an analysis of the existing schemes first.
Investment Objective: One of the important principles of investing in mutual funds is that one should never apply before doing a thorough research of a particular fund. A thorough analysis of the investment objective, its investment strategy, liquidity, risk level, benchmark index, asset allocation, and such factors should be carefully examined.
Cost of Investment: In case of any investment, costs must be an important consideration. In mutual fund investments in India, there could be two types of costs, viz., exit loads and annual recurring expenses (also known as total expense ratio). SEBI regulations put a cap on both the kinds of expenses. Due to such a ceiling on the expenses, almost all fund options operate within a narrow range. In that case, cost does not remain a big factor to select a scheme, be it an on-going scheme or an NFO.
NFO Structure: There are two types of mutual funds, one is open ended and the other is close ended, same applies to NFOs as well. Subscribers can subscribe to a closed-ended fund only during the NFO is open. While open ended funds can be subscribed even later whenever the investors wills to. So, one should check if he is willing to this parameter as well before investing. In other words, if one is considering to invest in a specific close-ended fund, NFO is the only option to invest. At the same time, in case of an open-ended fund, one has a choice to invest – either during the NFO or later.
A New Fund Offer, per say, may not mean a “new fund”, it is just the offer that is new. In such a case, any new fund must be evaluated in comparison with similar funds, if available already.