{"id":10019,"date":"2016-10-10T12:56:26","date_gmt":"2016-10-10T07:26:26","guid":{"rendered":"https:\/\/blog.fundsindia.com\/blog\/?p=10019"},"modified":"2019-07-23T13:12:59","modified_gmt":"2019-07-23T07:42:59","slug":"fundsindia-explains-what-is-an-nfo","status":"publish","type":"post","link":"https:\/\/www.fundsindia.com\/blog\/mf-research\/mutual-funds\/fundsindia-explains-what-is-an-nfo\/10019","title":{"rendered":"FundsIndia explains: What is an NFO?"},"content":{"rendered":"

Expanding into New Fund Offer, an NFO is the launch of a new mutual fund by an asset management company. Here\u2019s what you should know about NFOs.<\/p>\n

An NFO is not like an IPO.<\/strong> In an IPO, a company is raising funds from the public that it will use for a specific purpose. You have detailed information about the company financials, its business, its prospects, and so on in the prospectus. You therefore know the company\u2019s business, its profits, its growth over the years and whether the current offer price is justified. The company\u2019s price may even soar on listing if more investors (higher demand for the stock) see value in it.
\nAn NFO is not a company. It pools in money from investors and invests that in a set of securities (stocks or bonds or government securities and so on), based on a stated strategy. At the time of NFO, the fund does not hold any stocks and you, therefore, do not know whether the underlying stocks are cheap or expensive. The Rs 10 is just a price it begins with to allot units and has no underlying instruments for you to value it.
\nThe fund\u2019s NAV will change as soon as it deploys the pooled-in money based on the movement of price of the stocks it buys. The NAV change is not a factor of demand for or supply of units. If more investors want to invest in the fund after it reopens for subscription, it will simply collect this money, issue fresh units, and put it to work immediately in the stock or bond markets.
\n\"nfo\"<\/a>
\nAn NFO is not cheap.<\/strong> The growth of a fund\u2019s NAV is based on the performance of the instruments it invests in and not based on demand-supply forces. You will therefore be wrong if you think you\u2019re getting units \u2018cheap\u2019 at \u2018just Rs 10\u2019 in an NFO. The NAV is a tool used to account for investments in a fund \u2013 and to do such accounting in an NFO where there is no portfolio value, the NAV is taken at Rs 10. The absolute NAV does not matter \u2013 it could be Rs 10 or Rs 20 or Rs 100 \u2013 your investment is still worth the same.
\nAssume that you invested Rs 1,000 in an NFO, thus receiving 100 units. After a month, thanks to the fund\u2019s strategy, the portfolio rose 10% and the NAV became Rs 11. Your investment will now be worth Rs 1100, or a 10% absolute gain. But say the NAV at the time of the NFO was fixed instead at Rs 100, giving you 10 units. The portfolio gain of 10% will take the NAV to Rs 110. Your investment is still worth Rs 1100. At the end of the day, it is the amount you are investing and how that investment grows that is important, and not the NAV. What you are buying is a mutual fund\u2019s performance.<\/p>\n

Open<\/span> a FREE Account Now! <\/span><\/a><\/div>\n

An NFO has no track record.<\/strong> Because you need your fund to deliver, consistently, benchmark and peer-beating returns, you need some sort of proof of its ability to do so. That proof, that validation of a fund\u2019s strategy, comes about only when it has been around for some time, when it has seen a market cycle or two, and you are able to see what it does and how it navigates the markets.
\nIn an NFO, all you have to go by is the fund\u2019s mandate and an outline of what style it will follow. You do not know whether that strategy will be successful, you do not know the fund manager\u2019s ability to take the correct calls on stocks or bonds at all times. The risk you take in an NFO is much higher than when you go for a fund that has already been around for a few years and built up a history.<\/p>\n

An NFO can be open or close ended. <\/strong>You can well afford to wait out an NFO and see whether it\u2019s worth going for. In an open-ended NFO, once the offer period closes, the fund will reopen for subscription and you can invest in it at any time. In such NFOs, you will be able to give it time to judge its performance before making an investment. In a close-ended NFO, you can invest in it during the offer period only, and not after that. Here, the risk is the highest.
\nYou could argue that if everyone waited for funds to perform before investing in them, you wouldn\u2019t have funds at all. That may have been true in the very early days of mutual funds. Today, given the sheer variety of funds available, it is rare that you will find an NFO whose mandate or type isn\u2019t already available through established funds. You are not missing anything by skipping that NFO. Even if the NFO promises something new or different, you still do not know whether it makes for a good strategy. In close-ended NFOs, yes, you will not be able to make the investment once the offer period closes. But given that lack of control you have in close-ended funds, it\u2019s prudent to stay away from them altogether.<\/p>\n

Investing in NFO is made simple with FundsIndia. Open a free FundsIndia account in less than 20 minutes for NFO investing.<\/em><\/p>\n

Check out the latest NFOs!<\/span><\/a><\/div>\n","protected":false},"excerpt":{"rendered":"

Expanding into New Fund Offer, an NFO is the launch of a new mutual fund by an asset management company. Here\u2019s what you should know about NFOs. An NFO is not like an IPO. In an IPO, a company is raising funds from the public that it will use for a specific purpose. You have […]<\/p>\n","protected":false},"author":18,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[294,6,607,376],"tags":[436,38],"yoast_head":"\nFundsIndia explains: what is an NFO<\/title>\n<meta name=\"description\" content=\"It pools in money from investors and invests that in a set of securities, based on a stated strategy. 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