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Investors Must Evaluate To Suit Their NFO Needs

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Investors Must Evaluate To Suit Their NFO Needs
Himali Patel - 25 August 2020

Mumbai, August 25: In August, more than three New Fund Offers (NFO) entered the picture which includes Nippon India Mutual Fund, Union Mutual Fund, Mirae Asset Mutual Fund, and Baroda Mutual fund. Presently, there are different thematic NFO's like Environmental, Social, and Governance (ESG) funds, Multi-Asset funds coming up which will provide an interesting opportunity to the investors.

According to the experts, NFO’s are offered for three reasons. Firstly, to introduce new investment strategies. Secondly, to mobilise more funds. And, lastly, to offer new funds for those categories which go missing from the fund house’s portfolio during post categorisation of schemes. NFO provides a route for investors to diversify their portfolios.

NFOs are launched for subscription at a nominal cost of Rs 10 and provide an opportunity for the investor to benefit in the long run as the underlying assets may appreciate over a period of time.

“NFOs allow an investor to diversify the portfolio as the funds adopt new strategies as seen in case of recent NFO's of Multi-Asset Funds wherein exposure to global stocks was one of the unique themes,” says Vijay Kuppa, Co-Founder, Orowealth.

There is a need for the investors to study the investment objective of the fund, ideation, philosophy, and likely construct of the portfolio.

“Investors should map their objective and then look if the NFO is offering innovative investment strategies and greater flexibility than any of the existing funds available and accordingly assess if it makes reasonable sense to subscribe to the NFO,” explains Omkeshwar Singh, Head- RankMF, Samco Group.

However, there is no material advantage in investing in an NFO, unless the product is differentiated and meets the investment criteria of the investor, explains Akhil Chaturvedi, Associate Director - Head-Sales & Distribution, Motilal Oswal Financial Services. “It may so happen that AMC’s who do not have certain categories of products may choose to launch products, while investors with good experience may want to subscribe to the new fund offer,” adds Chaturvedi.

Experts are not ruling out the fact that in 2017 as Sebi has reclassified schemes under various baskets, the process has become hasslefree and the product can be easily comprehended.

However, the number of schemes in the universe has indeed witnessed a surge, especially in the open-ended ones. To give a sense to it, most of the AMCs completed their categorisation exercise by the month of September-October 2018. There were about 841 open-ended schemes.

“As of July 2020 (almost 21 months from October 2018), the count of open-ended schemes went up to 975. This is mainly because many AMCs were trying to fill their platter of offerings and presence in most categories. We feel this could further rise and gradually stabilise, as the gap gets filled subsequently. Hence, confusion does not exist at the broad or sub-category level. At scheme level it is crowded due to offerings by various AMCs,” believes Sriram BKR, Investment Strategist, Geojit Financial Services.

In the end, it is always advisable for the investors to take help of Mutual Fund Distributors (MFD) or RIA’s (Sebi registered investment advisors) to understand the products better. “Choosing mutual funds products can get complex given the range of schemes available across more than 40 AMC’s. Therefore, external help is extremely critical to make decisions,” points out Chaturvedi.

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