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Mutual fund scheme: After the decline in the stock market, there has been a rapid rise in the launch of new mutual fund schemes. One after the other mutual fund houses are introducing New Fund Offers (NFO), enticing investors with the promise of substantial profits through the allocation of inexpensive units in these schemes. Notably, in NFO, mutual fund companies sell units of new mutual fund schemes to investors for the first time, but only within a limited period. Similar to an IPO, investors are drawn in by the idea that they can acquire more units at a lower price.
However, financial experts caution against blindly investing in NFOs without proper consideration. It’s important to gather relevant information before making any investment decisions. Let’s take a look at the key factors to consider before investing in an NFO.
Key factors to consider before investing in NFO
Find out the valuation of the fund: Experts say that investors must find out the valuation of any fund before investing in any NFO. After this, see the structure of that fund, where your money will be invested. If it is invested in high-beta stocks, are you ready to take more risk? It is better to select the fund according to your risk capacity.
What is the theme of the fund?: Do look at the theme of the NFO. In which sector will your money be invested? Better returns are expected in auto, infrastructure or renewable energy. If the fund’s money is being invested in these sectors, then you can invest.
New index funds are a better option: Investors should invest in such NFOs that create new indices. Funds that capture specific market segments can be attractive investments. At the same time, funds that invest in commodities or arbitrage trades should be avoided.
Do look at the expense ratio: Before investing in any new fund, look at the expense ratio charged on it. A fund with a low expense ratio is beneficial. You get higher returns on investment in it.
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