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MintGenie Explains: 3 things to consider before investing in NFO
NFOs are new mutual fund schemes launched by fund houses that offer great investment opportunities at low costs. However, before investing in an NFO, there are certain things you must keep in mind. Let’s find out.
New issues always generate excitement. When a new stock is released for the first time investment, it is an IPO whereas when a new fund offers is when a new mutual fund is launched by an asset management company (AMC) for the first time. While both IPOs and NFOs are mainly launched with the aim to raise capital, the two must never be confused.
When an AMC or a mutual fund announces a new scheme to raise the capital it is called an NFO. It allows the public to invest in the pool for the first time. The money raised is mainly used to invest in securities like bonds and equity.
The NFO is offered by the AMC or MF only for a specific period of time at a specified price known as the offer price. During this period, the investors can purchase units of the new scheme at this offer price which is usually fixed at ₹10. Once this period is over, the new mutual fund scheme is listed and post listing, the units of the scheme can be bought at the commanding Net Asset Value (NAV) of the fund.
NFOs are launched with a new idea or a theme due to which it is not possible to see past performances or predict the future. However, one can still look at the past performances of similar funds to get a rough idea.
Since it is difficult to predict how the NFO will perform and unlike companies that launch IPOs, funds do not have valuations or fundamentals analysed by experts to make this decision easy. So let's look at some basic things to keep in mind before investing in a new fund offer:
Fund House
The reputation of a fund house is very important. An investor must not invest in an NFO from a fund house that has a shaky history. It is important that the fund house has been in the industry for at least 5-10 years and has the confidence of investors.
you must check the past track record of the fund house as well as the fund manager before investing in the NFO. You can also analyse past performances of similar funds launched by the fund house. The better the fund house, the higher your chances of a better return.
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First Published:9 Jul 2022, 03:23 PM IST
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