What is NFO in Mutual Fund? A Complete Guide for Investors.

What is NFO?

NFO means New Fund Offers. Just like an IPO, NFO is the new lunched fund in mutual fund market for investors. In NFO Investors also have chance to invest in the newly launched mutual funds and get the benefits of growth. NFO growth are also depend of the market conditions. After NFO period mutual funds start taking investments from Investor at its NAV (Net Assets Value). NAV can fluctuate based on the market segment or condition.

Why Do Mutual Funds Launch NFOs?

NFO is launched by Assets Management Companies (AMC) to raise the capital from Investors. These Assets Management Companies hires the Assets Managers to invest in the stock market. Assets managers are very qualified team who will do deep research in stocks and accordingly invest the money of investors. The returns they get from the stock market are shared with investors after deducting the mutual fund company commission. Mutual funds may be focused on specific sectors, theme or strategies that are popular or may give outstanding performance in future.

Some common reasons are why AMC’s Launch NFO’s

• Unique Investment Strategies : NFO may have some unique Investment strategies that may not have in current Mutual Fund.
• A new AMC launch : When a new Assets Management Company enter into market, NFO will be launch by the company. 
• Market Demand : Market demand are also the reason for NFO. In response of raising new trend like Green Energy, Technology and Electric Vehicle. If NFO is launched on based of new trend like Green Energy the that particular NFO will invest money on Green Energy Companies in stock market.
• Diversity of Fund Offerings : If a company only launch one NFO or caring one mutual fund that will depend on growth of only that particular sector growth. To diversify the company portfolio companies may launch new NFO’s for further growth of the company.

Types of NFOs

There are mainly 2 types of NFO’s

1. Open-Ended NFOs: Open ended mutual funds are the funds where investors can buy and sell mutual fund units anytime, as per current Net Asset Value. Open ended funds are more popular due to its easy liquidity, transparency and simplicity. There is no capping or limits in the open ended mutual funds.
2. Close-Ended NFOs: Close ended funds are the funds where investors can apply at the time of NFO launch. In close ended funds there is limited number of shares and investors cannot redeem and purchase units during the NFO launch period, once period ended Investors are unable to purchase and redeem units. These close ended funds have a fixed maturity period. Once the NFO closes, investors cannot buy or sell units until the maturity period ended. However, Investors can sell and purchase shares on stock market at the available market rate.

Key Features of NFOs

• Initial Unit Price: NFO’s initial price is fixed of ₹10 per unit, unlike the other mutual funds which have fluctuating NAV
• Theme Specific Investment: NFO’s are basically theme or niche based like Healthcare, Government, International Markets, Environmental etc.
• Limited Time Offer: Investors can subscribe for NFO during the specific period of time, usually this is a week of time to subscribe.
• Risk and Reward Potential: Like all other mutual funds NFO’s are subjected to market risk and reward. NFO’s growth is depend on the growth of that particular sector in which assets managers invested the capital.

Advantages of Investing in an NFO

• Opportunity to Invest in New Strategies: NFO’s are introduced with new strategic investment plans that may not available in existing mutual funds. This can provide opportunities to investment diversification and exposure to emerging sectors.
• Early Investment Advantage: NFO’s are provide you the opportunity to invest in starting before it gets very popular. Many investors prefer to invest earlier and get the full potential gains from mutual fund. 
• Low Entry Price: Opening price is fixed i.e. ₹10 per unit, It become affordable to new Investors to enter into the market.
• Diversification: NFO provides you the chance to diversify your investment like in specific sectors or asset class.

Risks in investing in NFOs

• Unproven Track Record: Unlike the well established mutual funds NFO don’t have the proven track record of the future performance. In absence of future performance there is no track record and raw for future.
• Lock-In Period: Some of the NFO’s especially close ended have lock in period so we can not send before the period end, resulted your money will stuck for certain duration.
• Market Risk: Like other mutual funds NFO’s are also have market volatility effect. It’s performance is based on the performance of assets underlying and there is no guarantee of return.

Factors to Consider Before Investing in an NFO

Before investing in an NFO, it’s essential to evaluate the following factors:

1. Investment Objective: Before investing in NFO your financial goals should be very clear. This might be long term or short term goals or low risk and high risk goal and are should clear on the returns of the investment because NFO performance are based on the market/assets performance.
2. Fund Manager’s Expertise: You should check the fund manager expertise in the financial investment decisions or you can check the past performance of investing. Everything you can get over the internet.
3. Sector or Theme: Understand the sector of NFO or theme of NFO. Sector growth will result your NFO growth.
4. Expense Ratio: Compare the expense ratio of the NFO with other similar funds. A higher expense ratio can impact your returns and this ratio should be lower.

How to Invest in an NFO

• Directly through AMC: You can directly visit to the asset management company’s website and subscribe to the NFO online as per process define there.
• Through Brokers/Agents: You can also apply for NFO through broker or agent. Broker or Agent are those persons who are authorised for sell mutual funds.
• Using Online Platforms: Many online applications are available which is providing Investors to invest in NFO’s. Some of these are Upstox, Angel One, Grow App and others.

Conclusion

NFOs offer an exciting opportunity for investors to explore new investment themes and strategies. However, it’s essential to perform thorough research before investing, as NFOs carry their own set of risks. If you are looking for diversification or want to invest in a specific sector, an NFO might be worth considering for your portfolio.

Disclaimer

The information provided in this article is for educational and informational purposes only and should not be considered as investment advice. Please consult with a certified financial advisor or conduct your own research before making any investment decisions.