{"id":29830,"date":"2024-06-12T12:14:39","date_gmt":"2024-06-12T06:44:39","guid":{"rendered":"https:\/\/www.fundsindia.com\/blog\/?p=29830"},"modified":"2024-06-12T12:14:40","modified_gmt":"2024-06-12T06:44:40","slug":"should-you-invest-in-an-nfo-here-is-a-framework-that-will-help-you-decide","status":"publish","type":"post","link":"https:\/\/fundsindia.com\/blog\/mf-research\/should-you-invest-in-an-nfo-here-is-a-framework-that-will-help-you-decide\/29830","title":{"rendered":"Should you invest in an NFO? Here is a Framework that will help you decide"},"content":{"rendered":"\n
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This article was originally published<\/em><\/em>\u00a0in Livemint<\/em>.\u00a0Click\u00a0here\u00a0<\/a>to read it<\/em><\/span><\/p>\n\n\n\n

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Nowadays, there are new mutual fund launches almost every day!

Thanks to the bull market and increasing equity market participation, in the last year, there has been a significant increase in new fund offers (NFOs) and this trend is expected to continue for sometime.<\/p>\n\n\n\n

Now you might be wondering: <\/p>\n\n\n\n

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Is it a good idea to invest in these new mutual funds (NFOs) or not?<\/em><\/strong><\/h5>\n\n\n\n

With so many options available it\u2019s often very difficult to make a choice. Don\u2019t worry, we are here to make this decision simple for you with the help of a framework. <\/p>\n\n\n\n

Let\u2019s begin\u2026<\/p>\n\n\n\n

What are NFOs and how do they work? <\/span><\/strong><\/h3>\n\n\n\n

NFO<\/strong> stands for New Fund Offer<\/strong> and refers to the launch of a new mutual fund scheme by an Asset Management Company (AMC) or fund house<\/strong>. During an NFO, the fund house invites investors to subscribe to the units of the new scheme. This is the initial phase when the fund is open for investment, and it typically has a fixed subscription period, after which the NFO closes, and regular trading begins.<\/p>\n\n\n\n

Below are a few myths about NFO we want to bust before we go into the details.<\/strong><\/h4>\n\n\n\n

Myth 1: NFOs are not similar to IPOs<\/span><\/strong><\/h3>\n\n\n\n

An NFO is not like an IPO.<\/strong> In an IPO<\/strong>, a company is raising funds from the public that it will use for a specific purpose. <\/strong>You have detailed information<\/strong> about the company financials<\/strong>, its business, its prospects, and so on in the prospectus. You therefore know the company\u2019s <\/strong>business, its profits, its growth over the years and whether the current offer price is justified.<\/strong> The company\u2019s price may even soar on listing if more investors (higher demand for the stock) see value in it.<\/p>\n\n\n\n

But, in an NFO<\/strong> the asset management company pools in money<\/strong> from investors and invests that in a set of securities (stocks or bonds or government securities and so on), based on a stated strategy<\/strong>. At the time of NFO<\/strong>, the fund does not hold any stocks<\/strong> and you, therefore, do not know whether the underlying stocks are cheap or expensive<\/strong>. The Rs 10 is just a price it begins with to allot units and has no underlying instruments for you to value it.<\/p>\n\n\n\n

Myth 2: NFOs are not cheap<\/span><\/strong><\/h3>\n\n\n\n

NFO is not cheap <\/strong>– While the NAV could be smaller (for example Rs. 10) usually that is the issue price but that does not mean that you are buying it cheaper. The growth of a fund\u2019s NAV is important which is based on the performance of the underlying instruments it invests in. Let\u2019s understand this with an example. <\/p>\n\n\n\n

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Myth 3: NEW does not mean better<\/span><\/strong><\/h3>\n\n\n\n

Do not assume that all NFOs are different and provide better returns<\/strong> – The NFO may not be adding anything new to your portfolio and you may have established alternatives in the same category that are better performers. This makes it rare to find funds that are truly differentiated and better from others in the category. <\/p>\n\n\n\n

To understand this better, we have checked the performance of the NFOs launched since 1st Jan 2019 (with at least a 1 year track record) till date (30th April 2024). <\/p>\n\n\n\n

Out of the 110 NFOs, <\/p>\n\n\n\n