Learn with ETMarkets: All you need to know about new fund offers

Many investors are often attracted to new fund offers, as there is media coverage, publicity and push by the fund house and its distribution team.

NFOs could be for close-end open-end debt funds, fixed maturity plans, hybrid funds or equity.

1. What is an NFO?
New fund offer (NFO) is first time subscription offer for a new scheme launched by the asset management company. NFOs can be open end as well as close end. You can invest in a close ended NFO during the offer period only.

However, an open-end fund reopens for subscription and investors have the option to sub scribe anytime after that. It is launched to raise money for a scheme which will even tually buy securities like stocks, government bonds, etc. from the market. NFOs are offered for a stipulated period. This means the investors opt ing to invest in these schemes at the offer price (mostly fixed at Rs 10) can do so in this stipulated period only.

After the NFO period, investors can take expo sure in these funds only at the prevailing NAV.

2. How is NFO different from equity IPO?
Initial public offering (IPO), is the first sale of stock by a private company to the public.IPOs are often issued by companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded. Often they are at a premium to the face value. A new fund offer is always available at Rs 10. An NFO from a mutual fund just 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 .

3. Is there any advantage of investing in an NFO?
Existing schemes from fund houses have a past track record.

The portfolio is known, the fund manager's style of investing is known.Such schemes are well researched and tracked by analysts. In comparison to this, in an NFO one does not know what the final portfolio will look like, what assets will the scheme garner and so on.

Wealth managers suggest investors should invest in an NFO only if it has something different to offer from the existing funds universe. Many investors fall for the trap of NFO since it is priced at Rs 10, compared to open-end schemes which could have higher NAVs (net asset value) which is wrong, say financial planners. Investors should realise that the NAV will ultimately grow based on the kind of portfolio the scheme holds.