SHOULD YOU INVEST IN A NEW FUND?

Go for a new fund offer only if the investment idea is different from the existing schemes or you wish to put your money in a scheme run by a particular fund manager

- Narayan Krishnamurthy

Every once in a while the investment market for mutual fund products witnesses the introduction of new fund offers, or NFOs. An NFO allows an asset management company (AMC) to raise funds from the public to operate a scheme based on the investment idea on which it is being launched. The subscription period of an NFO is generally 10 to 15 days and the units are available for Rs 10 each. Often, this seemingly attractive price is the main draw for new investors opting for an NFO.

Investing based purely on this logic is not in the best interest of an investor, because unlike certain other categories of new product launches—where products are test-marketed before a formal launch— an NFO doesn’t have any such testing. Yes, an NFO may have a back-tested model, but that is akin to buying a car based on ideal test conditions and not performance on road in real traffic conditions. NFOs are launched by an AMC to fill a gap in their product suite or if the AMC is newly formed—it has to have an NFO to start offering products.

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