Every mutual fund company wants you to invest in their NFOs. Are they worth it?

In 2023, 108 NFOs raised a total of ~₹50,000 crore. By July this year, 112 NFOs have already raised ₹65,223 crore, surpassing the previous year’s number with still five months left! On average, a new NFO is being launched nearly every other day.

I’m sure you would have seen the notifications from your stockbroking or investing apps asking you to invest in New Fund Offers. But hey, what is an NFO? Are they worth your money? Let me tell you.

What is an NFO?

When a mutual fund house comes up with a new scheme, raising the initial capital from investors for their new mutual fund scheme, it is called the New Fund Offering (NFO). Think of it as an IPO of a new mutual fund scheme.

The thing is, when companies come up with their IPOs, they present their track record & performance, allowing you to make an informed choice. That is certainly not the case with NFOs. So you have to be extra careful while investing in any NFO.

Three key factors to evaluate before investing

  • Fund manager’s track record
    Since NFOs lack historical performance, focus on the fund manager’s background. Look at their years of experience, the funds they’ve managed before, and how well those funds performed.
  • Lack of differentiation
    NFOs may offer similar investment strategies as existing mutual funds, so make sure it’s bringing something new to the table.
  • Suitability
    Make sure the NFO fits your risk tolerance, financial goals, and overall financial health.

In conclusion

Mutual fund companies would keep coming up with new funds every now and then. While it is good for them, most of the time it is not good for you.

Rather invest in funds that have been through the various market phases and have earned their stripes.