NFO Vs Existing Fund: Which Is Better For Investments?

Mutual funds are offered by Asset Management Companies (AMC) have grown rapidly in India. These mutual funds offer different types of mutual fund schemes to the investors for every mutual fund investor's needs. With the growing popularity of mutual funds in India, the number of fund houses or AMCs has increased as well.

Through NFOs, these mutual fund schemes come into existence and are giving a wide range of investment options to investors. Investing in a mutual fund scheme during the NFO period might be quite profitable.

It has seen that whenever an NFO is about to get launched by a mutual fund house, there is quite a buzz about it everywhere in the market. In between buzz and the existing funds with historical data the investor gets confused. They start wondering if investing in NFOs is better than investing in existing mutual fund schemes? What should I do? Why should I invest in NFO? Is NFO is similar to IPO? And so on! In this article, we tried to clear this confusion.

New Fund Offers (NFO)

In the financial markets, NFO is a new mutual fund scheme that is being offered to the general public. In other words, for the first time, a new mutual fund scheme with a new investment strategy is being offered to investors.

NFOs might also be offered by asset management companies as new mutual fund products that were not previously available in the asset basket. NFOs can be of two types, Close-ended funds, and open-ended funds.

NFOs give investors fresh investment alternatives and allow them to profit from impending market changes. The NFO is only open for a limited time, and investors may only participate in the program at the offer price during that time. In India, NFO pricing in mutual funds is normally set at Rs. 10 per mutual fund scheme unit.

After the NFO offering period ends, current and new investors can only buy units in the scheme at a set price, which is usually higher than the NFO price.

Existing Mutual Funds

While most people are aware of mutual funds, individuals who are new to the mutual fund world are typically surprised to learn that there are numerous distinct types of mutual funds. The existing mutual funds have historical data such as expense ratio, performance against a benchmark, returns, fund manager's experience, and so on, which the NFO doesn't have.

The factors help the investors to consider before investing in them. Understanding all of this information and conducting significant research on it might be laborious and time-consuming, but it will assist the investor in making an informed investment decision.

Conclusion

No doubt existing mutual funds have the upper hand in terms of data and returns, but NFO offers a new market. While NFOs have the potential to be extremely profitable, it is unrealistic to expect every NFO to do so.

Investing in NFOs provides a lot of benefits provided you do your homework on the NFO. Investors must have a thorough understanding of NFOs in order to gain the benefits of NFOs. NFOs have grown in popularity throughout time, both in terms of quantity and in terms of size.

Prior to investing in an NFO, you should think about the fund house's reputation, the fund's objectives, the returns potential of comparable funds already on the market, your investment aim, and the lock-in period in the case of closed-ended funds.

Unlike traditional mutual fund schemes, where you can simply verify historical performance before investing, NFOs do not provide any historical performance data. Investors are advised to do deep research about the respective AMC before investing in any NFO.