To attract stock market trading investors, mutual fund houses are progressively launching New Fund Offerings (NFOs). We've witnessed many NFOs from mutual fund companies in the previous 5-6 months. Following their participation in the mutual fund companies' collection of Non-Fund Operational (NFO) income, mutual funds have become more popular with individual investors in recent years.
What is NFO?
A New Fund Offer (NFO) is how an asset management firm raises money for its securities purchases by launching a new fund on a first-subscription basis.
How does NFO Work?
Subscriptions to the scheme are only available for a limited period when a new fund is being offered for the very first time. During the pre-defined period, investors will be able to purchase units of the mutual fund scheme and subscribe to the NFO at a pre-determined offer price. This is normally set at Rs 10 per unit. Once the tenure has expired, the investors will have the opportunity to purchase the fund units at the predetermined price. Generally speaking, subscribers to NFOs have been able to achieve significantly higher returns once the stock was listed.
What is the Risk?
Every mutual fund scheme comes with its own set of risk factors. Investors should first determine their risk tolerance before investing in mutual funds. If they're unsure whether the scheme is right for them, they should consult a financial advisor or a SEBI-registered investment advisor.
Is NFO a Good Opportunity?
The fund house, with the assistance of an NFO, obtains money from the general public in order to purchase securities such as equity shares, bonds, and other similar instruments on the market. Because it is a new fund on the market, NFO is less expensive than the older funds. In some ways, they are similar to initial public offerings (IPOs), in which members of the public can purchase shares before the company is listed on a stock exchange. Furthermore, the extensive range of marketing efforts that have gone into its promotion makes it a chance that cannot be passed up. However, there are situations when you must use your best judgment and intelligence before making a decision on one.
When should you invest in NFO?
When the markets are at their highest, most investors look for mutual fund investment opportunities. They want to get into the market, whether it's gold or real estate because they believe it will continue to climb. They do, however, choose profitable investments that are offered at a lower cost. Asset management companies (AMCs) strive to take advantage of this investor mindset. This is why individuals are drawn to the NFOs that appear to be less priced. Investors find the NFOs to be a good investment and subscribe to them. As a result, the fund houses will be able to meet their objective of increasing their Asset Under Management (AUM).
Conclusion
If you want to invest in an NFO, it is critical to conduct due diligence on the fund house. Check to see if the fund firm has a long track record in the mutual fund industry, at least 5 to 10 years. It will assist you in determining the fund house's performance throughout market ups and downs. The NFO may perform as promised if the fund firm has a solid track record.