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New Fund Offers or NFOs are the first time subscription offers for a new scheme that is launched by an asset management company. It is notably launched to raise capital from the public with an aim to buy securities including shares or government bonds from the market.
This set of mutual funds are brought for the investors by the fund houses which are willing to complete their product basket, or in case there is a demand from the investors concerning a particular investment theme. Here, you can get both close-ended funds as well as open-ended funds. In case of closed-end schemes where they generally have a tenure of 3-3.5 years, buying can be done only during the offer period. In contradictory to it, purchase of units of an open-ended scheme can be made anytime as per the investor's demand.
The working procedure of an NFO is similar to that of IPO. As in the case of an IPO, a company takes out them with an aim to raise funds to conduct business. Here, a mutual fund house takes out an NFO to raise funds with an aim to generate in stocks, commodities, currency as well as bonds.
In an IPO, a company raises funds from the public with an aim to use the same for a specific purpose. As an investor, you have detailed information about the company financials, its business(es), its prospects, and so forth in the prospectus. You, being an investor, therefore know about the company’s business, the profits it generates, the growth it has witnessed over the years and whether the current offer price is justified or not. It should be clear that the company’s valuation may even soar on listing if more investors (in case of higher demand for the stocks) see value in it. On the other hand, an NFO is not a company. It pools explicitly in money from investors and invests the same in a set of securities including (stocks or bonds or government securities, etc.,), based on a stated strategy. At the time of NFO, the fund does not hold any of the stocks and investors. Therefore, it does not know whether the underlying stocks are cheap or expensive. The Rs 10 is just a price, to begin with, in order to allot units and it has no underlying instruments for you to value it.
The main advantage of investing in an NFO is that here you can buy the securities with NAV at par value and can benefit significantly as the fund starts to perform well in the market.
As an investor in New Funds Offer, you can check for a few other things mentioned below: I.Get knowledge about the fund manager. II.Check on how his historical performance has been. III.Also, analyze that does he churns the portfolio frequently. IV. Don’t forget to get an idea about the fund size. V.See how much value does the scheme adds to your portfolio and if it matches to your investment objectives and risk appetite or not.
Certain special closed-end products are available only via NFOs. This includes Fixed Maturity Plans (FMP) as well as gold or silver ETFs.
MySIPonline has selectively brought you the list of the best NFOs from more than 40 fund houses in the nation. These funds are selected on the basis of the research of the experts, past performances, current market scenarios, and their ability to create wealth over a period of years.
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