Thursday, Aug 11, 2022

NFO Deluge: It’s Raining Passive, Global Funds, Should You Invest?

Fund houses are rolling out NFOs under index fund, ETF and fund of fund categories. Why are fund houses doing so and should you plunge in the NFO deluge?Currently, there are 14 NFOs that are open for subscription, and there are several others in the offing.

The new fund offer (NFO) market is hot right now with more and more fund houses joining the race. The last time such a flurry of NFOs was witnessed was in 2014-15. Currently, there are 14 NFOs that are open for subscription, and there are several others in the offing.

The stock market touched a new high of 60,000 points in September 2021 and other than short blips, the rally is continuing. Typically, investors get attracted towards equity investments when the markets are exuberant, and find houses try to cash in on the sentiment by flooding the market with NFOs. The same trend has been seen in the past.

The Passive Flavour

Unlike in the past, this time fund houses are focusing on either index funds or exchange-traded funds (ETFs), which have surpassed NFOs in other categories so far this year.

The reason why more index funds and ETFs being launched could be attributed to the categorization ruling of the capital markets regulator, the Securities and Exchange Board of India (Sebi), in 2017. The ruling asked fund houses to keep just one scheme per category. However, index funds, ETFs, thematic and sectoral funds were kept out from the purview of the categorization and rationalization ruling.

Out of the current 14 ongoing NFOs, three are index funds, index fund of funds (FoFs) or ETFs. FoFs are funds that invest in other mutual funds.

Going Global

Global fund of fund (FoF) is the next category which saw the maximum launches so far this year after index funds and ETFs. With awareness growing among investors, some are looking to diversify beyond geographical boundaries. This is why more and more global thematic fund of fund or ETFs are being launched, say experts.

Currently, there are four global fund NFOs running. These are PGIM India Global Select Real Estate Securities Fund of Fund, Mirae Asset Hang Seng TECH ETF, Mirae Asset Hang Seng TECH ETF Fund of Fund, and Motilal Oswal MSCI EAFE Top 100 Select Index Fund.

Should You Invest In Them?

Whether you should participate in the NFO deluge depends on what your individual financial goals are and how your overall investment portfolio looks like. If an NFO offers a product that your portfolio lacks, you may invest in it. But you need not run after them simply because there are NFOs in the market. Remember that you can invest in these funds even after the NFO period gets over.

While entering into an NFO, investors primarily need to evaluate their portfolios and financial goals to understand if a scheme fits in. Once you are clear as to why you are buying an NFO, evaluate the past record of the fund house and the fund manager before investing. You may also evaluate other similar schemes that are already established and have a good past record in terms of performance and management.