A new fund offer is an excellent avenue for making investments at the time of a mutual fund initialization. To those who wish to diversify away from their existing set of portfolios or emerge further into other sectors, NFOs may become quite attractive. However, in the case of every fund, the exact investment calls need to be taken depending on the fund’s objective, history of performance, and experience of the fund manager. You can approximate returns on SIPs through a SIP calculator, keeping track of the growth of the investment over time. The NFOs will work together with the existing SIPs. Thus, one may invest a fixed amount regularly.
Things to consider before investing in NFO
Hence, there are factors that one would need to check on before investing. These include strategy, management, fees, market conditions, and liquidity. The information below lists some important points to understand:
1. Investment strategy and fund objective: Before investing in any NFO, understand what kind of strategy and investment objective the fund will follow. In this respect, each mutual fund has some prespecified goal, with long-term capital growth and regular income targeting some sector or class of assets. You are supposed to try to align the fund’s strategy to your financial goals, risk tolerance, and time horizon. It can help you make a more informed decision.
2. Track record of the fund manager: What matters a lot while investing in an NFO is the fund manager’s experience. While an NFO itself doesn’t have performance records since it’s new, the experience and reputation of a fund manager play a great role in shaping the fund’s success. Look at the performance history of the fund manager to see if they have handled similar kinds of funds or performance concerning the management of funds.
3. Expense ratio and fees: The expense ratio will depict how much as an annual fee the fund has taken to manage your investment. An NFO may offer a very low expense ratio initially with the view that it looks very attractive and lures investors, but you will need to know the impact of long-term fees on your returns. Even small variations in fees can lead to large deviations in the final returns, especially over a long investment horizon.
4. Market timing and entry point: Just like any new product, a few initial conditions of the market and, most importantly, the timing of investment start playing an essential role. During the early days, the performance of the NFO is bound to external factors, such as volatile market conditions or investor sentiment. It is, therefore, important to assess whether this is the right time to invest in the specific asset class or sector the NFO is targeting.
5. Market sentiment and economic outlook: The success or failure of an NFO depends on the prevailing market sentiments and the larger economic situation. If the market is passing through lean times, it may hardly attract investor interest in subscribing to a new fund or may affect its performance at the opening. On the other hand, if the market sentiments are encouraging and growth-oriented, the situation may be just the opposite with regard to NFO.
Final words
Overall, by investing, one can reap the benefits of growth in the early stages. Your well-researched decisions ensure long-term benefits. Thus, investment in the NFO allows for capturing emerging opportunities right at their inception. Hence, NFOs are attractive to investors who are always searching for newer opportunities.