Are you thinking about investing in a mutual fund scheme? Do you think there may be a possibility of purchasing a cheap mutual fund? A mutual fund house tends to issue units for the first time via a new fund offer referred to as an NFO. The fund is pooled from the investors and, depending upon the investment objective, is invested in bonds or stocks. You have an opportunity to purchase the mutual fund at a low price. But investing in a NFO is not easy and there are some pointers that you need to consider.
The Working of an NFO?
An NFO can be open-ended, indicating that you may enter or exit the fund at any point of time. Though in some cases, it can be closed-ended as you may need to purchase the fund within a period of 15 days. Even though the funds cannot be redeemed before the fixed maturity period, One can invest in the units of NFO for a limited period at an offer price of Rs 10 per unit. Then the fund would close for subscription as the fund manager would invest in corpus stocks, which once again would be dependent upon the investment objectives of the fund. Coming to the close of the mutual fund scheme list, it can be listed on the stock exchange, as just like shares, you can buy or sell the shares. Third party websites like Share bazar can guide you through the process of purchasing these forms of mutual funds in detail.
You can purchase units of a mutual fund scheme at the existing NAV, which is after the expiry of the NFO period. In comparison to the NFO price, it is on the higher side. You may invest in the NFOs of debt schemes. But most investors prefer the new fund offerings of equity schemes.
The pointers to keep in mind before investing in NFO
- It is suggested that you study the scheme information document and understand the investment objective of a mutual fund scheme before you invest in NFO.
- Check out the previous track record of the fund house along with the fund manager before investing in NFO. If the fund manager has a strong record of superior performance, they would be able to manage the scheme in a better way.
- Invest in a NFO after taking into consideration the costs associated with the scheme. Most of the new funds have a small corpus of funds with the expense ratio on the higher side. It is always better to invest in a mutual fund that has a low expense ratio to enhance your return.
- Check out the investment theme of the NFO before you invest your hard earned money.
The financial advisors would always suggest you to invest in funds that offer substantial returns in the long run. If there is a gap in your portfolio you can invest in a NFO. Though it is better for you to wait and have a clear idea before investing in NFO.
