Factors to Consider While Investing in a New Fund Offer

As the popularity of mutual fund investment grows among today's investors, Asset Management Companies (AMCs) and fund houses are levelling up their game by introducing new mutual fund schemes. Whenever a new scheme is launched, it is done via a New Fund Offer or NFO.

If you are new to this term, worry no more. This blog will take you through what it is and what factors to consider while investing in NFO.

What Is a New Fund Offer?

A New Fund Offer is a process by which mutual fund houses or AMCs introduce new schemes in the market. By launching an NFO, an AMC invites investors to subscribe to its units within a time frame. Following this, the fund house will invest and reinvest the pooled money in different assets to help investors achieve capital growth and meet their goals.

Investments in NFO start from a nominal amount of ₹10 per unit. This makes it easy for investors with limited budgets to diversify their portfolios. Another interesting fact about NFO mutual funds is that these are monitored and regulated in accordance with the SEBI guidelines, just like any other mutual fund scheme. As per SEBI's mandate, an AMC or fund house cannot issue NFOs on identical assets.

This makes it evident that AMCs and fund houses can launch NFOs to introduce new investment themes for investors. In the similar note, Groww Mutual Fund is shortly launching its BFSI NFO Mutual Fund, which will be open for subscription from 17 January 2024 to 31 January 2024. This will be an open-ended equity scheme that will invest majorly in the banking and financial services associated sector.

Factors to Consider While Investing in New Fund Offer

To choose the best NFO to invest in today, you must consider the following factors while researching:

a. Nature of Securities

The very first thing you must note while considering a New Fund Offer is the nature of the securities that the AMC will invest in. Fund houses and AMCs mention these esInvestments in NFOsential details in an offer document that they file with SEBI. As an interested investor, you can browse through them for a comprehensive knowledge of which assets your fund will be invested in.

Knowing the nature of securities will help you know whether that particular NFO aligns with your investment goal and risk appetite or not. For instance, if you have a low-risk appetite, you can steer clear of investing solely in mutual funds that include small-cap company stocks. Instead, you can opt for NFOs that invest in large-cap or mid-cap company stocks. 

b. Reputation of Fund House or AMC

While researching for investment in NFO, you must also consider studying the reputation of AMC, which is launching the NFO scheme. This will help you determine the credibility of that particular AMC and help with a comparative analysis to decide which NFO aligns with your investment goal.

c. Fund Objective

You can also browse the offer document to learn about the fund objective. This states the ultimate goal that an AMC is planning to meet through the NFO launch in the long run. If you find an AMC's fund objective aligning with your investment goal, then you are good to go with the investment in NFO.

d. Cost of Investment

According to terms and conditions set by individual AMCs, investors need to pay a minimal amount towards the subscription of its units. This amount can start from ₹10 per unit. However, this might vary among AMCs.
Therefore, to avoid burdening your finances, consider looking for the cost of investment in NFO beforehand. This will help you conduct a comparative analysis so that you can plan an investment strategy efficiently.

e. Risk Appetite and Investment Goals

As an investor, you must be well aware of your risk horizon and investment goals to know which NFO mutual fund is better for your finances. This is a must-check factor, so don’t skip it.

f. Track Record of Fund Manager

Along with the above points, you must also research the fund managers whom the AMC has assigned to monitor your investments in NFO. To study this, you can research the performances of mutual funds that the fund manager already manages.

g. Expected Returns

While analysing which NFO mutual fund suits your finances, you can consider computing your expected returns. This will help you check whether the scheme holds the potential to fulfil your financial needs.

How to Invest in NFO Mutual Funds?

You can invest in the best NFO mutual funds today by following certain simple procedures online or with a broker’s assistance. The points below elaborate upon both investment methods:

a. Online Method

This process is suitable for experienced investors with a Demat account. To go ahead with investment in NFO, you need to log in to the trading platform of your depository participant. Following this, you must enter certain necessary details like investment amount and tenure and fulfil the e-KYC procedure. Once done, you can now choose among open NFOs to subscribe.

b. Brokers

If you are not comfortable with the online process or you are a new investor, you can directly approach authorised brokers and seek their assistance. A broker can help you through the process of an NFO subscription, providing you with financial advice to ensure a secure investment.

Advantages of Investing in NFO

Here are a few advantages that you might witness while investing in the latest NFO in mutual funds.

a. New Investment Strategies

By investing in NFO mutual funds, you can explore monetary growth opportunities through innovative strategies. For instance, when the market does not seem favourable, close-ended NFOs can hold your investment till the risk of loss seems to lessen.

b. Low Initial Investment Amount

You can start your investment in NFO with a per-share amount of ₹10. This makes NFO schemes accessible to a broader spectrum of investors.

c. Allows Portfolio Diversification

With NFO investments, you can also focus on portfolio diversification as these new mutual fund schemes introduce unique investment themes to your portfolio. Consequently, your investments can have an opportunity to fetch better returns for you while lowering chances of facing major losses. 

The Bottom Line

One can consider NFO as a good investment for its comparatively lower initial principal amount than other existing mutual funds. Additionally, it also helps to diversify your portfolio, hence proving its profitability.
However, an NFO mutual fund does not come with a performance history like other mutual fund schemes. This makes investment in NFO risky for novice investors. Therefore, if you are a beginner, consider seeking assistance from financial experts to plan an NFO investment, keeping your investment goal and risk appetite in mind.