Your NFO investment checklist
4 min read . Updated: 18 Aug 2020, 11:25 AM IST- The final choice that an investor makes regarding an NFO should be systematically dependent on his long term investment goals, returns expected and the risk appetite
Investors seeking to park their funds in market-backed securities are always on the lookout for new and interesting investment avenues. Hence, fund houses and asset management companies are working round the clock to create an innovative mix of investment products to bring more value to an investor’s portfolio. A new fund offer, is just one of them. Here are some questions to ask yourself before investing in a new fund.
What is an NFO?
A NFO or ‘New Fund Offer’, is essentially a new mutual fund launched by an asset management company. AMC’s usually launch these NFO’s to provide products that are not already existing in their bouquet of offerings and to help investors with newer outlets to deploy their funds in. While in an existing mutual fund, the fund has already invested in a few shares and securities, in a NFO the fund is raising capital to purchase these securities for the first time.
Types of NFOs
There are essentially two types of NFOs. One is Open – ended Funds where the fund is officially launched after the NFO period ends. Investors can enter and exit the fund after the launch as well. The second variant is close – ended funds where an investor cannot enter or exit the fund after the NFO period, until its maturity.
Why NFO?
NFOs enables an investor to diversify and seek out new themes or sectors to invest in. An investor, after assessing the current portfolio, can invest in a NFO to bring in a new asset class or look at an innovative theme Eg: a NFO which is dedicated to a pharma sector or a NFO which is a multi-asset fund where the fund invests in more than one asset class.
NFOs and existing mutual funds play an important role in building one’s portfolio. How does one pick the right NFO? Investors should keep in mind the following points which will enable them to make the right investment decision:
Type of fund
New funds can be backed by equity, debt, hybrid, money market instruments, ETFs or any other securities permitted by Sebi from time to time. There may also be funds which are focused towards domestic securities or some which provide a fair bit of international or cross border diversification. An investor should carefully study the asset allocation of the new fund in question before purchasing its units. The final choice that an investor makes regarding an NFO should be systematically dependent on his long term investment goals, returns expected and the risk appetite.
Offer opening and closing date
Unlike a conventional mutual fund, where one can invest at any time – NFOs are only open for a specific time period. This duration can be anywhere from 3 days to 15 days. Thus, an investor desirous of investing in a NFO should carefully pay attention to the offer opening and closing date and ensure he purchases units during the prescribed period.
Asset management company and fund manager
The AMC and fund manager that backs a new fund offer is integral to its success. AMC’s with a good market reputation and a proven record of successful products are more likely to provide better returns on investment than new AMC’s without any historical backing. Further, a fund manager with established credentials ensures that the new fund is guided well and constantly kept in checks and balances. This ensures that the funds invested are used appropriately and the investor gets a fair deal on his hard earned money.
Rate of return
Rate of returns are a crucial determiner for any kind of investments. Since, new funds are opening to the public for the first time, one should well informed before investing. One must take into the account the track record / performance of the AMC and investment
investment category to understand the potential for delivering returns in the future. Also, Rate of Return is a factor of the investor’s duration of investment and risk appetite. Therefore, one should be clear on why one is choosing a particular fund.
The mutual fund investment industry is huge and varied with an option available for every kind of investor. In such a scenario, it is always advisable to be well researched before investing. For the ones who invest directly, the digitally savvy app investors have easy access to the information that is required. Mobile Applications/ Apps have built -in tutorials that provide guidance to investors. For the ones who are not the ‘do -it- yourself investors’ should definitely seek the advice of a financial expert. Invest wisely! It is your hard earned money after all!
Saurav Basu is head – wealth management, Tata Capital.
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