NFO: Is it Good to Buy? Investing in NFO vs Existing Mutual Funds

In recent times, new mutual funds, or NFOs have flooded the markets. So, is it good to buy NFO or should you go with time-proven existing mutual funds?

Should You Invest in NFO?

Reasons for not Investing

Following are the reasons:

• These NFOs have no proven track record. There are many older funds in the market which can be more relied upon.
• It comes with high initial expenses. Money invested by the AMC in marketing these funds is recovered from the investors
• NFOs are not at all like IPOs. In case of IPOs the price fluctuates as per market expectations whereas here the supply of fund is practically unlimited.
• NFOs are not cheaper than other funds. It is at par with other funds, so investor should prefer to invest in an older fund as compared to this one.

Mutual Fund Companies come up with NFO to increase their bundle of products and to increase their Asset Under Management (AUM). Investing in an NFO depends on various factors like the risk investor is willing to take, fund house coming up with the NFO and the value proposition offered.

Investing in an existing fund is preferred over an NFO because an existing fund has a proven track record whereas an NFO is a completely new fund with no past record.

Moreover, the investors have a trust in the existing fund manager because of his ability to generate consistent returns over the years whereas the same cannot be said for a New Fund Offer.

An NFO is offered at absolute price and investors can pool their money and invest in the NFO for the given time. However one should not just consider the absolute price while taking the decision of investing in the NFO. The absolute price is most case is generally INR 10.

Reason for Investing

If you are aware of market conditions and have the required skill to study the equity market conditions, then you can take an informed decision regarding investing in these funds.

What is NFO?

NFO stands for New Fund Offer. Mutual Funds have been coming out with New Fund Offer. New Fund Offers are just like IPOs wherein they come out with new funds and investors have to subscribe for the fund.

Mutual Fund companies come out with these NFOs during bull phase when investors are optimistic about the market and are willing to put in more money into the market. It is advised by investors not to subscribe to these NFOs.

Recently launched NFOs

Few NFOs recently launched are:

• HDFC Housing Opportunities Fund

The investment objective of the fund is to provide long-term capital appreciation by investing predominantly in equity and equity-related instruments. Fund Managers are Mr Srinivas Rao Ravuri and Mr Rakesh Vyas who have been associated with this fund for past couple of years. This is a sector specific fund and falls into high risk category.

• Reliance Capital Builder Fund IV

The fund shall seek to invest primarily in the Small Cap space with a focus on the Domestic Revival opportunities which can benefit from conducive factors such as lower interest rates, Government led capex, policy reforms. Fund Managers are Samir Rachh and Meenakshi Dawar.

• Mahindra Unnati Emerging Business Yojna

The investment objective of the Scheme is to seek to generate long-term capital appreciation & provide long-term growth opportunities by investing in a portfolio constituted of equity & equity related securities. Fund manager is Ratish Varier who has 10 years of experience as a fund manager.

Types of NFOs

The New Fund Offers can be of 2 types:

• Open ended fund: Here an an investor can withdraw the amount invested whenever he feels like or whenever he is in need of the amount invested.
• Close ended fund: In this case the amount invested by an investor remains invested for a particular period of time i.e till maturity period. Investors in this case cannot withdraw the amount whenever they feel like i.e there is liquidity issue. Investors should invest in this fund only if they are being offered something very different from a normal open ended fund.

Which Funds to Invest in?

So if NFO is not an option for you, can look at the following funds to invest in:

Tax Saving ELSS Funds

Aditya Birla Sun Life Tax Relief 96

Large Cap Funds

SBI Bluechip Fund

Mid Cap Funds

Aditya Birla Sun Life Small & Midcap Fund

Small Cap Funds

L&T Emerging Businesses Fund

Multi Cap Fund

Motilal Oswal MOSt Focused Multicap 35 Fund

Debt Funds

1. Axis Liquid Fund
2. L&T Short Term Income Fund

Balanced Fund

ICICI Prudential Balanced Advantage Fund

If the above this of funds is not enough, you can explore from these top 30 funds: Groww 30 – The Best Mutual Funs to Invest in 2018.

Happy investing!