Is The NFO Euphoria Good For Investors?

New fund offers are being launched a dime a dozen. But does it make sense for investors to subscribe to them?

- Rajiv Ranjan Singh

The Indian mutual funds industry is riding high on the back of a buoyant equity market. Investors’ bullishness for the equity market is visible through the growing number of mutual fund systematic investment plans (SIPs) and the flurry of new fund offers (NFOs).

SIPs recorded a monthly inflow of close to ₹10,000 crore in August 2021, according to data from the Association of Mutual Funds in India (Amfi), while in September alone, at least three NFOs were launched—Kotak MultiCap Fund, Mirae Asset S&P 500 Top 50 ETF and HDFC Developed World Indexes Fund of Funds. The industry mopped up ₹60,000 crore through 84 NFOs launched between January and August 2021, according to Amfi.

Clearly, more and more investors are buying into NFOs. But does it really make sense to buy into every NFO that comes out in the market? Let’s explore.

Is an NAV of ₹10 a Big Deal?

Usually, it’s the small ticket size of the NFO units that allures investors. The net asset value (NAV) for most NFOs is as low as ₹10 per unit. But it may simply be a marketing gimmick.

Industry experts believe that the equity market euphoria is playing a vital role in new scheme launches, but are also worried about the way they are being marketed.

“The fundamental purpose of any NFO is to gather assets and fund houses would exploit the market buoyancy by creating buzz around the ‘new fund launch’ with a low ₹10 NAV,” says Swarup Mohanty, chief executive officer (CEO) of Mirae Mutual Fund.