What Is A New Fund Offer In Mutual Funds?

An asset management company sets up a new mutual fund using a New Fund Offer (NFO). The way the New Fund Offer works In a new fund offer, you only have a small window of time to sign up for the mutual fund plan. Investors can buy units of the mutual fund scheme and subscribe to the NFO at a certain price during the set time. This is usually sold for Rs. 10. After the term is over, investors will be able to buy fund units at the set price. In general, subscribers to NFOs have been able to make a lot more money after being listed. Why is the NFO such a great thing? Through an NFO, the fund house asks the public for money so it can buy securities like stocks, bonds, and other financial instruments on the market. Because NFO is a new product, it costs less than the funds that are already on the market. They are like initial public offerings (IPOs), in which shares are sold to the public before being listed on a stock market. Also, the many marketing strategies used to promote them make it an opportunity that is too good to pass up. Sometimes you have to use your smarts and common sense before picking one. When to put money into a New Fund Offer? When the markets are at their best, most investors look for ways to invest in mutual funds. They want to get into the investment market, whether it's for gold or real estate, because they think it will continue to grow. But they also choose investments that make money but don't cost as much. Asset management companies (AMCs) try to make money off of this way of thinking on the part of investors. This explains why people are more interested in NFOs that seem to cost less. Investors decide that NFOs are a good way to put their money to work and sign up for them. So, the fund companies might be able to reach their goal of increasing their Assets Under Management (AUM). Things investors should think about The credibility of the fund house Investors who want to put money into NFOs must do a lot of research on the fund house. Make sure that the fund house has been in the mutual fund business for a long time, preferably between five and ten years. You can use it to look at how the fund house has done during ups and downs in the market. If the fund firm has a good track record, the NFO could do what it says it will do. Funding Goals In the fund's goals, things like the asset mix, level of risk, expected returns, and liquidity are all laid out. It helps you figure out if the NFO is possible. An NFO must give a detailed explanation of the investment process it will use for the time frame given. Simply put, it means that people who want to invest in the fund should read the offer document to learn more about how the fund management plans to use their money. If investors can't figure out what the NFO's goals are, this shows that there are problems with the way they do things. The theme of the new fund offer There are a lot of mutual fund programs in the Indian mutual fund industry. So, if you come across an NFO, you should read the fine print carefully to figure out what the fund is about. The investment topic needs to be long-lasting and different from what is already on there. But it's usually not a good idea if you find out that the new fund offer is just a copy of a tactic that has already been used. If you're interested in an NFO, it's a good idea to look at past returns. The offer agreement might or might not say anything about this. You can look at the fund based on a rate of return that you think it will get. If you have already put money into the fund, you might want to look at it every three years for the first three years. To figure out the trend of returns, you can compare the performance of the mutual fund to that of the index and peer funds. Risk involved Putting money into NFOs could be risky. NFOs don't have a track record of how well they've done, unlike existing funds, where it's easy to check the asset allocation and risks. Also, you won't know how the manager of the fund plans to use your money. If there were no benchmarks or measurements, it would be hard to predict how well the fund would do. It can be hard to know what happens to the fund, whether it succeeds or fails. Investment cost The total cost of the investment is one of the things that affect how much money you could make from it. Even though there is no entry load, you may have to pay an exit load if you want to cash in your units before the term ends. If the lock-in period is longer than your investment horizon, the exit loads may change how well your investment does. The expense ratio is another important factor. This is the fee that the fund house charges you every year to manage your money. It is best to find out if the ratio of expenses is less than or the same as what SEBI wants. The minimum cost of a subscription Most NFOs tell investors how much they need to put down before they can join. It could be anywhere between 500 and 5,000 rupees. As an investor, this could be the most important thing you use to narrow down your choices. If the minimum cost of a subscription is more than you can afford, you might want to look at your other options. In this case, you might want to choose a systematic investment plan (SIP), which is cheaper and easier to use and is part of a high-performing scheme that is already in place. Investment Horizon NFOs also have lock-in periods of between three and five years. You will be expected to maintain your investment for the whole term in such circumstances. Make sure your goals and time frame for investing match up with your investments. If you joined a mutual fund scheme, it's possible that you won't be able to cash in your units before they mature. In rare cases, you could also be charged a "pre-exit cost" or "exit load" for the same thing. If your chosen NFO lasts longer than your investment time frame, you might want to look at other options. Zebu makes it easy and paperless to invest in mutual funds without a lot of hassle. To get started today, please get in touch with us.