Upcoming NFO in October 2023

NFO, commonly known as New Fund Offering, means the initial offering of units or shares of a mutual fund or Exchange-Traded Fund (ETF) to the public for subscription. It is essentially the process through which a new investment fund is launched and made available for investors. The process of NFO is similar to the IPO, where the company raises funds from the general public, and all the details are collated in DRHP and RHP. Likewise, NFO details can be procured from the Scheme Information Deed (SID), the sole document for the information, such as the objective of the scheme, fund manager details, entry and exit load, etc.

Understanding New Fund Offering

Investors can purchase units of the fund during the NFO period. The length of the subscription period can change, typically falling between a few days and a few weeks. Every NFO may have a minimum investment requirement outlining the lowest sum of money an investor can contribute to participate in the scheme.  NFOs carry inherent risks, just like any investments. The offer document always describes potential risks connected to the fund. The investor should pay attention to SID before investing in the scheme.

Upcoming New Fund Offerings in October 2023

Now, let us understand the benefits and limitations associated with investments in NFO.

Benefits of Investing in an NFO

• Early Investment Opportunity: NFOs allow investors to join a new fund immediately, and it will provide investors with the benefit of compounding from its early stages.
• Lower Initial NAV: The NAV is often fixed at a standard price (such as ₹10 per unit) during the NFO period. The initial NAV is typically lower than once the fund is launched. As a result, the investors are likely to purchase NFO in order to save costs.
• Prospect for Capital Gains: Investors who participate in NFO might see their investment increase in value, resulting in capital gains, if the fund performs well after the NFO period.
• Portfolio Diversification: Investors can diversify their portfolios beyond conventional investments using NFOs to incorporate new asset classes, industries, or techniques.

Limitations of NFOs:

• Lower Track Record: NFOs lack performance data because they are brand-new funds. To evaluate possible returns, investors are required to rely on the fund manager’s track record and the offer document details.
• Uncertain Performance: The success of a new fund cannot be anticipated. The fund may need some time to build a track record, and there is a loss possibility if the investments perform differently than expected.
• Limited Liquidity: Until the NFO period is over, NFO units cannot be purchased or sold on the secondary market like established funds may. This creates a lack of liquidity for investors who want to quickly abandon their positions.
• High Initial Expenses: The overall profits for investors may be impacted by NFOs’ potential for greater initial costs, including marketing and distribution charges.

In summary, NFOs provide opportunities for investors to access new and potentially promising investment options at a lower initial cost. However, they also come with risks related to the lack of a track record and potential higher initial expenses. It is important for investors to carefully assess their own financial goals, risk tolerance, and the details of the NFO before investing.

Final Words

If these above NFOs interest you, check them out on the Angel One App. Open a demat account with Angel One today if you are new to the stock market. Disclaimer: This article has been written for educational purposes only. The securities quoted are only examples and not recommendations.