NFOs are first-time subscription offers for a new scheme. Many funds launch NFOs to complete their product basket. For example, if an AMC does not have a hybrid fund or multi-cap fund, it could launch an NFO to offer that product to investors. NFOs can be for both open as well as closed-end funds. In a closed-end NFO, you can invest only during the offer period. On the other hand, open-end funds reopen for subscription again and investors have the option to subscribe on any working day at the prevailing net asset value.
Should investors put money in a new fund offer?
Financial planners say investors should invest in an NFO if there is a need for that product in their portfolio, or there is a theme, which can be played only through the new fund. Many investors invest in an NFO because it is priced at ₹10, compared with other existing schemes with higher NAVs. It is a wrong strategy, say financial planners. Investors to stick to open-end schemes, which have a track record. They believe that in an existing scheme, the portfolio and fund manager's style of investing is well known. In comparison, in an NFO one does not know what the portfolio will look like or how much assets the fund will gather.
What is the difference between an equity IPO and a mutual fund NFO?
Equity IPOs are issued by companies seeking capital to expand or to become publicly traded. On the other hand, an NFO from a fund house just pools in money from investors and invests in a set of securities (stocks or bonds or government securities), based on a stated strategy. Rarely are IPOs done at the face value today, as most of them are done at a premium to the face value. On the other hand, an NFO is always available at ₹10.
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