Investing in NFOs: Here’s all you need to know

Mutual funds companies are coming up with various new schemes. New fund offer or NFO is the first subscription offering for a fund by a mutual fund company. When a mutual fund company comes up with a new scheme it introduces it as an NFO. Hemant Rustagi, founder-director of Wiseinvest, in an exclusive discussion with Money9 explains what are NFOs and if investors should consider investing in them.

What are NFOs?

A new fund offer is launched up when a mutual fund comes with a new scheme. These funds are introduced for a specific period of time that is for some days. At that time units are calculated at par value as NAV is not available. These are new funds so the past performance is not available to assess them. So, investors can buy units at par value. After the NFO period ends, the scheme will open again and that is when NAV will be calculated for the fund. At that time, on the basis of NAV-based price, you can invest additional money in the fund further. So if we say it in simple terms NFO is the first step, from where a fund’s journey begins.

Should you invest?

NFO offers attractive schemes. Investors are often tempted by these funds. Whether a person should invest or not in them depends on his/her suitability. To invest in an NFO, an investor has to check whether it is suitable. It is important to assess one’s own portfolio’s suitability, evaluate the asset allocation and space in the portfolio. Considering the size of the fund house, the performance of other funds from that AMC and the fund manager’s track record can help a lot in selecting the right NFO.