NFOs or New Fund Offers are the first subscriptions made by fund houses to investors. Like Initial Public Offerings (IPOs), NFOs are launched for a limited period of time. Its primary objective is to raise funds to purchase securities like Government Bonds, Treasury Bills etc. NFOs usually are priced lower than existing funds for being new in the market. NFOs are a great investment opportunity if you know what you’re doing. We have listed out the traits of these types of investments below so that you can make an educated decision:
OPPORTUNITIES ARISING FROM INVESTING IN NFOs
- Opportunity to diversify an investment portfolio
- Based on a unique and fresh investment style
- Being close-ended makes them profitable (pre-determined exit)
- Open-ended NFOs offer liquidity which is an advantage to investors specific about liquid flow.
- Being launched in the bull market, they are a great opportunity for avid investors as they generally invest when the market is high.
NFOs may come associated with certain risks. The uncertainty factor is quite high as you do not have any past record to track performance. It is totally up to your fund manager how he allocates its assets. This is so because fund allocation is done only after the entire money is collected. Any prediction is quite dicey in case of NFOs; only time can tell.
NFOs are a great opportunity for people looking forward to accumulating wealth. There may or may not be clarity regarding returns in the offer document but two factors that can be considered to approximate the returns are:
- a) Performance of the fund manager
- b) Performance of related or similar themed funds
It is advisable to review your NFO portfolio regularly to track their market progress. Invest further only if you feel confident about them.
NFOs generally come with a lock-in period which may range anywhere between 3-5 years. This may affect your investment goal in the long run. If you are comfortable with your money locked-in for such a long span, then this might prove to be the best investment decision you have made.
Once invested, the units or money cannot be redeemed until maturity. Exit load may also exist in such a case.
Please keep in mind your investment goals before investing in NFOs.
While you are planning to invest in NFO, the minimum subscription amount may be one of the most important criteria for selection. NFOs may range from Rs. 500 to Rs. 5000. So you really need to re-work your budget if you wish to invest in a fund which is highly priced. SIP is one option to invest in high priced funds at convenience.