NFOs hit the charts, experts tell what first-time investors should do

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Edelweiss NIFTY Bond Plus SDL Index Fund – 2026, a new fund offer (NFO) launched earlier this week, is the 11th NFO to hit the charts since February 1, 2021.

Most financial advisors are of the view that first-time investors should stay away from NFOs and rather invest in funds that have a good history of returns.

“New investors should avoid NFOs, until they have built a core portfolio of passive and active funds with good track records,” said Vishal Dhawan, founder & CEO, PlanAhead Wealth Advisors.

As the name suggests, Edelweiss NIFTY Bond Plus SDL Index Fund is an ‘index fund’ or a passive fund that requires no active management by the fund manager. Moreover it invests in the bond market for a five year period, targeting investors looking at predictable returns over a five-year time period. It falls under the ‘Moderate Risk’ category.

Prior to this NFO, SBI Mutual Funds launched its first international mutual fund – SBI International Access US Equity Fund-of-Funds. This fund allocates 10% to 15% of its portfolio towards international equities. This fund has been categorised as ‘Very High Risk’ by online wealth management company Groww.

“NFOs are launched with a new idea or a theme/sector. This makes it difficult to analyse the future of the fund. There are always similar kind of funds already in the market that are rated by the experts and can be analysed qualitative and quantitative basis its past record, which cannot be done in case of NFOs,” said Adhil Shetty, CEO BankBazaar.com.

Dhawan explains why first-time investors should stay clear of NFOs. he says, “a) The lack of a track record prevents investors from being able to evaluate how the strategy has worked or not worked in the past. b) Expense ratios may not be clear (in NFOs), and c) If NFOs are close-ended, timing risks exists as the entry cannot be staggered to get the benefit of rupee cost averaging.”

Feroze Azeez, Deputy CEO, Anand Rathi Private Wealth, concurs.

“Portfolio constituent evaluation is not possible (in NFOs), track record is not available too. Other similar (mutual funds) may be available for first time investors to consider. “First-time investors have a large universe to chose from for the open-ended conventional categories – so no, one should never begin with NFO. NFO should be only used to plug gaps in the portfolio, if any,” he said.

Shetty believes that if an investor must invest in NFO, then the fund must offer a unique offering.

“It is recommended that you invest in an NFO only if it has something different to offer from the existing funds universe, or something which cannot be achieved through an open-end fund,” he said.