NFO is the first instance when a mutual fund scheme is opened to investors for public availability. The price is what makes an NFO attractive, starting with a price of ten rupees per unit; nevertheless, don’t let that be the only thing leading your decision.
Know the Fund’s Objective
Every NFO mutual fund has its specific goal. This is the place the money will go and what it aims to achieve. Some have complete equity investments, and some have debt; others have a combination of both.
Read the terms of the fund document. Check if the goal matches what you want from your investment. For example, an equity NFO may be applicable to long-term plans, while a debt NFO may apply to short-term plans. Pick only what supports your financial needs.
Check the Background of the Fund Manager
The NFO is new, but the fund manager has experience. Look at the manager’s past work. Study how they handled earlier schemes. See how they performed in stable markets and in volatile periods.
What a steady experience as a fund manager can do is assure you of how well the new scheme is expected to be run. This step builds your trust in the fund’s approach.
Identify the Investment Strategy
One strategy or another defines every NFO. They are usually sector-oriented, market-cap-oriented, or theme-specific investments in real-time, fixed income, and index tracking.
Ask yourself simple questions.
Will this strategy fit in with my portfolio?
Is this strategy easy to understand?
Too narrow or too complex?
If unclear, it is probably not for you. Compare with similar mutual fund schemes already in the market.
Understand the Risk Level
All NFOs come with some risk; equity NFOs come with market risk, debt NFOs with either interest rate or credit risk, and hybrid NFOs will combine the two.
The riskometer specifies any mutual fund scheme: low, moderate, or high. This label will be there before you ingest it. Enquire about an NFO whose risk hangs well with yours.
Comparison with Existing Funds
Many of the new fund offerings closely correspond with offerings currently established in the market. Compare the new fund offer with those already existing in the market according to:
Schemes in that same category
Schemes with similar strategies
Schemes with the same fund manager
If, say, one already existing meets your needs, then you might not need the new fund offer. This also indicates what to expect since, you know, an NFO has no past returns.
Check Costs and Exit Rules
There are charges to invest in NFOs, and so it is important to review the expense ratio. The higher the expense ratio of the fund, the lower the long-term gains.
Check to see if there is an exit load. Some NFOs charge a fee if you exit early. This matters if you plan to redeem your units within a short period.
Examine Liquidity and Lock-in Period
Open-ended NFOs can be purchased or sold after the period of the NFO expires. However, some NFOs may have a lock-in period and may restrict redemption for a particular time period.
Read the fine print and check whether the fund operates under any lock-in rules. This is relevant if you need your money back at short notice.
Do Not Wait For the Market Timing
Many believe that because the NAV starts at ten rupees, it must be cheaper than the others. But NAV does not give the bigger picture of whether the fund is actually cheap or expensive. The only thing that matters is the portfolio.
It would be a mistake to invest in an NFO merely due to market swings or a short-term occurrence. Rather, check if the long-term thought of the fund fits into your plans. You can use the mutual fund calculator to check expected returns and investment periods, thus providing clearer decisions.
Know the Tax Rules
Here all NFOs are treated like the other mutual fund schemes. Different tax regulations govern equity funds, and different rules govern debt funds.
Find out how long you will need to hold the units to achieve a more favourable tax outcome. This is important for understanding your actual returns after tax.
Time Horizon Should Match the Fund with Your Investment
Your time horizon counts. Equity NFOs are usually for long-term plans, while debt NFOs are suited for shorter-term needs. Hybrid NFOs are for mixed goals.
Select the NFO only if the time horizon matches your plan. This will avoid confusion and will help you keep your investment without stress.
But do not put in money. Just because It Is New
The clients are drawn to new concepts, but a new fund usually is not a better fund. Treat this NFO like any other NFO; study the facts, check the risks, look at the strategy, and so on. Simple ideas that fit your needs beat new ideas that have no additional value.
Final Thoughts
If you make the right choice regarding an NFO, it could be beneficial to your portfolio. It’s imperative to review the objective, strategy, risk level, cost, liquidity, and the tax rules. Compare the fresh fund offer with existing mutual funds. Plan your investment using a mutual fund calculator.
