Investing in New Fund Offers

A new fund offer (NFO) is quite similar to an equity Initial Public Offer. Both raise capital to further operations. New fund offers are usually marketed aggressively to get investors to purchase units.
However, being a first time investor you should avoid NFOs because buying into new funds is like buying into unknown. A new fund is an untested entity without any track record. Your investment call will have to be made purely by looking at the fund manager and the AMC. You can avoid the risk by opting for well-established funds with proven worth.

It is generally a good idea to stay away from NFOs. Investors need to understand that NFOs are purely a marketing device that creates some excitement. AMCs always communicate strongly during an NFO. A prudent investor should absorb this information carefully and invest later when the fund opens for sale and repurchase on an ongoing basis.
However, there are certain special closed-end products that are available only through NFOs, like Fixed Maturity Plans (FMP) and gold or silver ETFs. Before investing in them you should consider, how much value they will add to your portfolio and if it matches your investment objective and risk appetite.

This article was originally published on March 22, 2013.