NFOs offer low NAV, more units, and new strategies. It’s essential to understand the risks, common misconceptions, how it aligns with your financial goals, and whether they truly add value to your investment portfolio.
Imagine you're at a festive fair in your hometown. There's a new sweet stall that everyone's talking about. The vendor claims their sweets are fresher, cheaper, and tastier than the well-known stall that's been around for years. But should you trust this new stall just because it's offering something new? Investing in a New Fund Offer (NFO) is quite similar.
Let’s understand the basics and explore whether an NFO is the right choice for you.
You can see that you got more units in the New Fund (10,000 units) than the existing fund (2,000 units). However, the value of your investment under each remain the same.
If both the NFO and the existing fund deliver the same return rate, your overall investment value will be the same, regardless of the number of units you hold. So, getting more units in an NFO doesn’t necessarily translate to better returns.
Source - NAVs taken from AMFI | Returns calculated by Anuj Kesarwani, founder, Zenith Finserve
In contrast, existing funds have a track record that can help you make a more informed decision. So, while new strategies might seem appealing, they could also lead to unpredictable outcomes.
What is a New Fund Offer (NFO)?
A New Fund Offer, or NFO, is when a mutual fund company, also known as an Asset Management Company (AMC), launches a new mutual fund scheme. It’s like a new shop opening in the market. An AMC might introduce an NFO to expand its existing range of products or to capitalise on a new investment trend. When you invest in an NFO, you’re essentially putting your money into a brand-new mutual fund that hasn't been tried or tested. In FY 2024, the Indian Mutual Fund industry collected ₹66,000 crores through NFOs, and ₹62,000 crores in FY 2023. Clearly, many people are interested, but should you be one of them? Let's look at what an NFO offers and whether it aligns with your investment goals.What Happens During an NFO?
When an NFO is launched, there’s a specific period during which you can invest in the fund. This period usually lasts a few days. The AMC will outline how and where the money collected will be invested. Once the NFO period closes, the fund managers use the collected money to purchase securities (like stocks or bonds) that align with the fund’s objectives. After a short period, the fund becomes available for regular purchase and sale by all investors.What are the Benefits AMCs Claim for Investing in an NFO?
Investment in an NFO is generally offered with the following benefits-- You get low Net Asset Value (NAV)/ discounted rate
- You get more units
- Limited Period Availability
- Make short-term gains
- Exposure to new strategies
- Diversification of your portfolio
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You Get Low Net Asset Value (NAV)
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You Get More Units for Your Investment
| Particulars | New Fund | Existing Fund |
| Amount Invested | ₹ 1,00,000 | ₹ 1,00,000 |
| Starting NAV | ₹ 10 | ₹ 50 |
| Units allotted to you | 10,000 (1,00,000/ 10) | 2,000 (1,00,000/ 50) |
| NAV after one year | ₹ 11 [10 + (10% of 10)] | ₹ 55 [50 + (10% of 50)] |
| Your Investment Value | ₹ 1,10,000 (10,000 X ₹ 11) | ₹ 1,10,000 (2,000 X ₹ 55) |
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NFO is Available for a Limited Period
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You Can Make Short-Term Gains
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An NFO Provides Exposure to New Strategies
| Scheme Name | AUM (₹ Crores) | Launch Date | Periodic Returns from respective NFO Launch Date | ||||
| 1 Week | 1 Month | 3 Months | 6 Months | 1 Year | |||
| SBI Balanced Advantage Fund | ₹14,551 | 31-Aug-2021 | 0.52% | 1.75% | 0.91% | 0.77% | 5.00% |
| ICICI Business Cycle Fund | ₹4,185 | 18-Jan-21 | -0.50% | 7.90% | 4.60% | 16.80% | 34.20% |
| NJ Balanced Advantage Fund | ₹5,216 | 29-Oct-21 | 0.10% | -1.50% | -3.00% | -2.40% | -2.40% |
| ICICI Pru Flexi Cap Fund | ₹9,808 | 16-Jul-21 | 0.10% | 2.50% | 10.30% | 11.40% | 5.90% |
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You Can Diversify Your Portfolio by Investing in an NFO
