Ask these three questions before investing in an NFO

The last three years have seen the launch of more than 300 new equity and hybrid funds, collectively raising a mammoth Rs 1.64 lakh crore. The momentum continues unabated in 2024, with 16 new fund offerings (NFOs) in January alone. Even though SEBI limits fund houses to offer just one fund per category, the latter has found a loophole: there is no restriction on the launch of passive funds. As a result, there has been a wave of NFOs in these two categories. In fact, 52 of the 55 new large-cap funds launched between 2021 and 2023 were passive funds (index funds, ETFs or Fund of Funds). This surge in new fund launches triggers a crucial question for investors: how should one approach investing in NFOs, and more importantly, are they investable at all? NFOs are not like IPOs Unlike the excitement around initial public offerings (IPOs), where investors eye quick profits on listing gains, NFOs are far more prosaic and low-key. In the case of NFOs, investors purchase units at a standard price of Rs 10 each. And this is where the misconception comes in. Some investors mistakenly believe that the lower Net Asset Value (NAV) of Rs 10 during an N