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List of New Fund Offers

In this article you will insight on all New Fund Offer (NFOs). This article also talks about who should invest in NFOs, its advantage and much more.

Whenever a new mutual fund gets launched, a New Fund Offer (NFO) occurs for investors. It's an introductory offering made by the fund house for investors to raise the capital for purchasing securities. It is very similar to Initial Public Offering (IPO) with the difference that IPO invests in stocks and NFO in mutual fund units. Each NFO comes with a specific theme and objective that investors may choose depending on their financial goals and interest.

There are two types of NFOs: 

Closed-Ended NFO: These NFOs are open to investing for a few days. Investors can invest in them during the specified NFO period. Once the NFO period gets over, the investors cannot invest in the scheme. These NFOs come with a predefined maturity date, and the investors can only redeem their units and receive returns after the tenure, which is 3-4 years.

Open-Ended NFO: Once the NFO ends, the scheme is declared open-ended. These NFOs are available for purchase at their face value (NAV), so the prices are higher than that of NFOs. With open-ended NFO, Investors can buy or sell units as per their wish, making it the most preferred mutual fund. 

List of New Fund Offers in 2022 in India

~~No new funds offers are available at this time~~

Who should invest in NFOs?

Since the NFOs are introductory funds, they are more inexpensive than existing funds. NFOs are usually available at Rs 10, much lower than their actual Net Asset Value (NAV). This difference in the NAV and NFO offer price makes these funds a too-good-to-miss opportunity for the Investors looking for a value-for-money proposition. But, unlike existing funds, NFOs don't have a performance history that investors can compare with other funds for decision-making. Hence, investors should select an NFO only if the scheme offers them an unusual investment opportunity in line with their financial goals and risk appetite. 

Taxation on NFO

NFOs are taxed just like other mutual fund schemes. In the case of equity funds and short-term capital gains, a tax of 15% is applicable. Long-term gains get exemption from tax for up to 1 lakh, and 10% is applicable on capital gains exceeding 1 lakh. The short and long-term capital gains from equity funds are decided based on the holding of 12 months. 

In the case of debt funds, short-term capital gains (if you redeem units before three years) get taxed at the investor’s income tax rates, and long-term capital gains get taxed at 20% along with indexation benefit. The debt fund gains are decided based on a holding period of 36 months.

Risk Associated with NFOs

Getting started with mutual funds through NFO may seem an affordable deal, but NFO does come with some risks that investors should consider before making the investment decision.

  • No track record: Unlike existing funds, NFOs have no performance history. Without benchmarks and metrics, it's difficult to predict the performance of the funds, whether they have chances to perform well or fail. As a result, investing in NFO could turn out as a risky affair.
  • Risk of higher expense ratio: Even though NFO's face value is much lower than existing funds, all the marketing and management expenses are passed to investors in the form of the expense ratio and have to be paid by the investors.

Return potential of NFO

Investing in an NFO can be beneficial to generate better returns as the units are purchased at a nominal rate as low as Rs 10. Once they start being traded in the market, their NAV increases and brings substantial profits for the investors. Investing in NFO has a lot of benefits, provided you have researched well for NFO. They have the potential to turn out profitable for investors, but again not all NFOs are the same. Before investing in NFO, check the fund house's reputation, fund objective, and lock-in period if it's a closed-ended fund. Also, get your risk profiling done by financial advisors such as Glide Invest. 

Advantages of investing in NFOs

Investing in NFOs can be advantageous in many ways. Here is a look into some of the benefits that investors experience with NFO investment.  

  • Low-cost investment: NFOs are a lot cheaper than the existing funds as they are new to the market. Many investors find NFO a rewarding opportunity to make better returns and thus willingly invest in it. Besides, you have the opportunity to invest in funds before anyone else. 
  • Better gains in investment: Since there is a considerable difference between the face value of NFO and the NAV, it offers a pleasant opportunity for investors to generate superior returns once the NFO starts trading in the market like other funds. 
  • Diversifies Investor's Portfolio: NFO offers investors an opportunity to invest and diversify their portfolios through innovative schemes of various themes and strategies. Investors can invest in NFOs at nominal rates and experience unique fund schemes across asset classes, sectors, and market caps. 
  • Make you a disciplined investor: The lock-in period in closed-ended funds ensures that the investors stick to the funds for a long time and saves them from redeeming the units untimely and ruining their financial goals.

Why should investors choose NFO?

NFO provides a chance to the investors to maximize their returns and choose a favorable fund scheme based on the various parameters like investment objective, maximizing returns, investment budget, etc. Investors have to consider many factors to select an NFO like the reputation of the AMC, the minimum amount of subscription required, lock-in period, investment cost, etc.

With an NFO, the fund house raises money to purchase securities in the market such as equity shares, bonds, and alike. NFO is more inexpensive than the existing funds as it is new to the market. They are similar to the Initial Public Offering (IPOs), in which the public can purchase shares before they get listed on a stock exchange. Also, a whole range of marketing efforts goes into their promotion, making it a too-good-to-miss opportunity. However, investors still need to put their judgment and knowledge before settling for one.

Conclusion:

Unlike traditional mutual fund schemes, where you can simply verify historical performance before investing, NFOs do not have past historical performance data. Investors must get a deeper understanding of the respective AMC before investing in the NFO. Consulting a financial advisor such as Glide Invest is a great resource to acquire complete details about NFO mutual funds and select the scheme based on your profile while adhering to the associated terms and conditions. 

FAQs

Got queries related to NFO? We have got you covered with this FAQ section.

  1. How are NFOs and IPOs different?
    • Ans: In NFO, the company offers its newly launched mutual fund units to investors. In the case of an IPO, a private company sells the shares of a company to the public. NFO and IPO are similar in a way that both focus on raising the capital for further operations. However, IPO deals with the stock, whereas NFO units of mutual funds.
  2. How long an NFO stays open for the investors?
    • Ans: An NFO can remain open in the market for a maximum duration of 30 days. 
  3. Can I opt for SIP (Systematic Investment Plan) in an NFO?
    • Ans: You can opt for and start a SIP if the NFO is an open-ended fund.
  4. What is the minimum subscription amount offered for an NFO?
    • Ans: The minimum subscription amount of an NFO ranges from Rs 500 to Rs 5,000.

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