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What is the difference between an NFO and a mutual fund?

Dhirendra Kumar explains

How is an NFO different from a mutual fund?
- DM Tank

Every mutual fund starts as an NFO (New Fund Offer). Its history gets built up over time when it starts becoming older. An old mutual fund has a portfolio, so you can see what a fund has invested in and how it did in falling and rising markets. An NFO is an offer where people put their money, and then the fund manager starts investing.

So an NFO is like a fresh start, you just know who will be managing your money, and you buy a strategy that the fund claims. Now, a good part of the performance is heavily dependent on the starting point of a fund. If the fund is launched when the market is low and goes up, the fund will do well and vice-versa. However, we get to know with hindsight only whether the fund was launched at a peak or the bottom.

A lot of money gets mobilised in an NFO because of the noise created in the market with aggressive advertisements, and many people buy into the idea, even the simple ideas. I am quite surprised that despite so many existing fund options, people easily put large amounts into NFOs.

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