Image Source : PIXABAY NFO is a first-time subscription offer for a new mutual fund scheme.
Nowadays, people have a lot of investment options. One of them is NFO or New Fund Offer. We usually see a lot of buzz when a fund house launches a new NFO. But is it a wise decision to put your money in the NFO? If you are planning to invest in an NFO, here are certain points that you should be aware of.
What is NFO?
Before we talk about these points, let us first explain what exactly an NFO is. As the name suggests, it is a first-time subscription offer for a new mutual fund scheme offered by asset management businesses. It is open for subscription for select days before being made available for trading on secondary markets. However, this option is not available for a close-ended fund.
As you now know about the NFO, let us tell you some of the disadvantages an investor must know.
No performance history: As this is a new fund offer, you cannot find a track record or performance history. So, it becomes quite difficult to perform a quantitative or qualitative analysis. Therefore, people end up relying on a fund house’s past performance – not a wise thing to do.
High initial expenses: When a new fund is launched, the expenses on the marketing of the fund are high and are managed out of the net asset value. Also, every fund house charges a fee to manage your money – which is deducted from the returns generated.
NFOs are not like IPOs: People tend to compare NFOs with IPOs and think that they will get the benefit if the demand for funds increases. This is because there are no fixed units and can be increased as and when required. But in the case of stocks, the number of units is fixed and the prices rise when demand increases.
Limited diversification: The NFO offer limited or less diversification as they invest in specific asset classes or sectors.
Lock-in period: While this is not exactly a disadvantage, it is still a very important factor that investors must keep in mind. Some NFOs have lock-in period and you cannot redeem your units in this period.
