Understand the benefits of NFO

The latest mutual fund scheme is introduced with a New Fund Offer (NFO). Understanding the benefits of NFO investing can assist investors in determining whether the plan aligns with their long-term investment strategy and financial objectives. NFOs may appeal to investors who are comfortable with market-linked¹ products and structured investing techniques.

What is an NFO?

NFO is the introduction of a new mutual fund by a company. Investors may purchase the plan at the initial offer price during the NFO period. The fund begins investing in securities in line with its investment goal when the offer expires. Units are distributed to investors when the NFO closes. After that, the decisions made by the fund manager and changes in the market decide how well the fund performs.

How does an NFO operate?

A fund company declares an NFO when it launches a new scheme. The offer remains open for a limited time, during which investors may participate by making a lump sum investment. The fund is given units when the NFO closes and starts investing in underlying assets as per its declared goal. Investment value is then determined by fund management choices and market performance.

Pros and cons of investing in an NFO

Before planning, it is important that you consider both sides.
 

Pros

• Low entry price: Companies usually list NFOs at ₹10 NAV, providing opportunity to earn higher units on your fixed investment.

• Early involvement: From the start, investors have access to a new fund in its early stages.

• Clearly defined investment goal: NFOs have a properly defined investment goals and strategy

• Diversification of portfolios: New industries or themes that might not be offered by current funds are introduced by some NFOs.

Cons

• No history of performance: Since the scheme is new, it is not possible to evaluate previous performance or check past returns.

• Risk associated with the market: Returns fluctuate by the performance of assets and the situation of the market.

• Considerations for suitability: Individual risk tolerance and financial planning requirements determine eligibility.

Conclusion

NFOs may help long-term financial planning if they are properly selected and matched with personal goals. Investors should understand both the risks and the rewards of investing in NFO plans in order to decide whether they fit with their financial plan. Those who are at ease with market-linked instruments and favour a systematic, goal-oriented approach to wealth generation can potentially profit from investing in NFO.