NFO Watch: Two new mutual fund offers open this week

Two new fund offers or NFOs are currently open for subscription in the market. An ELSS fund and a multi asset allocation fund are open for subscription. The market was flooded with NFOs in the last few months as mutual fund houses were competing with each other to launch passive or index schemes, or trying to complete their bouquet of offerings. However, the NFOs have dried up in the last three weeks.

Should you invest in these NFOs to get maximum returns?

First, let us find out why mutual funds launch NFOs. Mutual fund houses typically launch new schemes because they want to complete their bouquet of offerings to increase the assets under management. Sometimes, funds may have discovered an interesting theme or idea which they think may offer an opportunity to create wealth.

Many mutual fund investors consider investing in a New Fund Offer or a new scheme if it is from their favourite fund houses. Some investors choose NFO if it is managed by a star fund manager. Some investors consider investing in NFOs as they are cheaper and offer the units at Rs 10.

However, just because the NFO is from your preferred fund house doesn’t mean that you should invest in it. Sure, your beloved fund houses may be managing some great schemes. However, there is no guarantee that the new scheme will also be a great hit. The same logic applies to the argument about your star fund managers. They may or may not replicate the success.

The myth of Rs 10 NAV is something that refuses to die. A scheme with a lower NAV need not be better than schemes with higher NAVs. This belief was prevalent earlier. However, as awareness spread, this mistaken notion died its natural death. However, some new investors still fall for the sales pitch. An existing scheme with a long track record will have a higher NAV because it has already made investments and benefited from those investments. A new scheme, on the other hand, is still starting to invest. That’s why the NAV is Rs 10. It will collect money and then start investing.

So, should you invest in an NFO? It is always better to invest in mutual fund schemes with a long performance record. This is because you have some historical data to base your investment decision. You don’t have any data when it comes to new offerings. Most mutual fund experts say you may consider investing in a new scheme if it offers something unique or new that is not available in the market.

Always consider investing in a scheme based on your financial goal, investment horizon, and risk appetite. Even when you are investing in an NFO don’t ignore these factors.