What are the key factors to consider before investing in NFO?

The rush of fund houses to launch new schemes comes after market regulator, Securities and Exchange Board of India (SEBI) set July 1 as the deadline for implementation of a new system. It had banned the launch of NFOs till the new system was implemented in April.

Before the ban, Indian asset management companies had 21,464 crore from 57 schemes, according to data available with industry body Association of Mutual Funds of India (Amfi).

Offered plans currently include two open-ended exchange-traded funds (ETFs) HDFC Mutual Fund On Monday.

According to the fund house, HDFC Nifty Next 50 ETF- the benchmark of Nifty Next 50 Total Return Index (TRI) offers diversification benefits at both stock and sector levels. Additionally, the benchmark HDFC Nifty 100 ETF – Nifty 100 TRI provides exposure to the Indian large-cap space by focusing on the top 100 companies by absolute market capitalization.

ICICI Prudential Mutual Fund has launched Nifty 200 Momentum 30 Index Fund and Nifty 200 Momentum 30 ETF. Nifty 200 Momentum 30 Index constitutes of 30 companies selected from the Nifty 200 Index based on their normalized momentum scores.

Other schemes include two flexi-cap funds by Baroda BNP Paribas Mutual Fund and WhiteOak Capital Mutual Fund and a Balanced Gain Fund by Mirae Asset Mutual Fund.

Usually, fund houses launch new funds to fill gaps in one category or thematic funds when a particular sector or theme performs well. An NFO is somewhat like an Initial Public Offer (IPO) of a company. An AMC issues new fund units for investment based on a specific subject, which can be large-cap, mid-cap, international equities or even bonds.

Many new investors in the market are fond of NFOs – they feel that investing in NFOs is cheaper as they can provide better value than existing funds. Besides, only . A new fund is available at the cost of 10, which is its net asset value. However, experts say that this is a wrong investment strategy.

“The biggest myth about NFOs is that it is cheap. As an investor, you have to look at the price and valuation at which the fund house is investing in the current market,” said Rushabh Investment Services, founder of Rs. Rishabh Desai said.

Investors should also keep in mind that launching a new fund costs a lot. A fund house often invests heavily in the promotion and marketing of a new scheme and these expenses are ultimately passed on to the investor. These factors can actually make a new fund more expensive than an existing fund.

Experts also suggest that, for funds based on themes such as flexi-cap, large-cap or small-cap, investors should stick with existing outperforming and consistent funds that have already been around for at least three to five years. Are in the market for more than that. It allows investors to measure the track record of a scheme.

Desai says that he will recommend a new NFO only after a thorough analysis. “For example, if there is an NFO with a unique topic, philosophy and reliable back-test data, and only if it fits into one’s portfolio, I would recommend it.”

“Investors should stick with their asset allocation,” he said.

first article