As mutual funds have grown in popularity in India, so has the number of fund houses or AMCs (Asset Management Companies). When you visit the websites of prominent AMCs, you will notice that they provide several sorts of mutual fund programmes to investors.

But have you ever thought about how these strategies came to be? Using NFOs. Investing in a mutual fund scheme during the NFO period could be quite profitable. Consider what NFOs are, how they work, and the benefits they provide.

What Is An NFO?

When a fund house creates a new mutual fund plan, it is referred to as an NFO. Similar to stock market IPOs (Initial Public Offerings), fund houses employ NFOs to obtain initial money for the purchase of securities that are in line with the fund's aim.

The NFO is open for a set length of time, during which investors can participate in the programme at the offer price. The NFO pricing in mutual funds in India is normally fixed at Rs. 10 per unit of the mutual fund scheme. When the NFO period finishes, current or new investors can only purchase units of the plan at a predetermined price, which is usually higher than the NFO price.

Is This A Good Opportunity For You?

The fund house uses an NFO to generate funds from the public to purchase market instruments such as equity shares, bonds, and so on. They are similar to IPOs, in which the general public can purchase shares before they are listed on a stock exchange. Furthermore, the extensive marketing efforts that go into its promotion make it a too-good-to-pass-up chance. However, before selecting one, you should use your discretion and wisdom. Just look at our market for a better view and understand the upcoming NFO of the market.

Types Of New Fund Offers

They are mostly of two types, and they are:

Open-Ended - An open-end fund will announce fresh shares for purchase on a specific launch day in a new fund offer. The number of shares available in open-end funds is unlimited. On their initial launch date and subsequently, these funds can be purchased and sold through a brokerage firm. The shares are not traded on a stock exchange and are managed by the fund business and/or its affiliates. Net asset values for open-end mutual funds are reported days after the market closes.

Close Ended - Because closed-end funds only issue a limited number of shares during their new fund offer, they are frequently among the most heavily marketed new fund issuances. Closed-end funds are traded on an exchange and receive daily price quotes throughout the day. Closed-end funds can be purchased through a brokerage firm on the day they are launched.

Benefits Of Investing In NFOs

1. Disciplined Investing Lock-in Period

Many people invest in mutual funds only to redeem them after a few months. This has a detrimental influence on the investment objectives. However, with NFOs, such as closed-ended NFOs, there is a lock-in term during which you must remain invested. This systematic approach to investing boosts the possibility for profits. Here is the list of a few upcoming NFOs.

  • Axis Bluechip Fund
  • Invesco India Growth Opportunities Fund
  • Mirae Asset Large Cap Fund
  • Parag Parikh Flexi Cap Fund
  • Samco Flexi Cap Fund
  • ICICI Prudential Strategic Metal and Energy Equity FoF Fund
  • And More

2. Produce Profits

As previously stated, there might be a large disparity between the NFO and NAV prices. This distinction can be extremely lucrative at times.

3. Invest In Emerging Funds

Many AMCs are currently introducing novel mutual fund plans. Some schemes, for example, invest solely in newly listed stocks and IPOs. In addition, some schemes include hedging tactics to provide higher returns for investors. You can invest in such funds through NFO before they are open to all investors.

This is just the tip of the iceberg, and you can find more that match your financial needs and are good performers.

Should You Be Investing In NFOs?

While NFOs can be quite rewarding, it is incorrect to believe that every NFO would produce large returns. Before investing in NFO, you need to think about a few things. They are as follows:

  • The fund house's reputation
  • Goals of the Fund
  • Returns potential of comparable funds already on the market 
  • Investment goal
  • In the event of closed-ended funds, there is a lock-in period.

Unlike traditional mutual fund schemes, where you can simply review prior performance before making an investment decision, NFOs do not provide any past performance statistics. As a result, they are risky and are not suitable for risk-averse investors.

Investors That Look To Invest In NFOs

When the markets are at their highest, most investors look for mutual fund investment opportunities. They want to get into the market, whether it's gold or real estate because they believe it will increase further. However, they also favour profitable investments that are offered at a lower cost. Asset management businesses (AMCs) attempt to capitalise on this investor mindset. 

This is why many gravitate toward the ostensibly less expensive NFOs. Investors consider NFOs to be a good value for money and subscribe to them. As a result, the fund houses will be able to meet their goal of boosting their Asset Under Management (AUM).

Conclusion

This can be an opportunity for you to diversify your portfolio, especially given the paperless and instantaneous investment processes. Giving you a heads up - just read the print of the NFO thoroughly and find out if it matches your objective and goal.