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NFO vs Mutual Fund – Know the Difference Between Both

NFO vs Mutual Fund – Know the Difference Between Both

Mutual funds are a popular investment option, given their wide range of benefits. Mutual fund investments are also a great way to diversify your portfolio. However, lately, there has been a lot of buzz surrounding NFOs, short for new fund offers. It has been observed that anytime a mutual fund company is set to introduce an NFO, there is a lot of excitement in the marketplace. 

The average investor is often caught between the NFO hype and existing funds with good past records. “Is NFO good for investment?” “Should I invest in NFO?” “Is it good to invest in NFO?” “Is NFO profitable?” “What is the difference between NFO and Mutual fund?” – This article aims to provide answers to all these questions.

What is NFO?

NFO stands for 'new fund offer.' It is a fresh mutual fund plan that is being provided to the public at large in the financial marketplace. In other terms, when investors are given a new mutual fund plan with a new investment strategy for the very first time, it is called an NFO. Asset Management Companies (AMC) may also offer these NFOs as fresh mutual fund offerings that were not formerly accessible in the asset mix.

Reasons why should you invest in NFO & Reasons why you should not invest in NFO

NFO offerings have recently flooded the market. But should we invest in NFO? Is it good to invest in NFO? Is NFO good for investment? Or are the existing mutual funds a better alternative?

Whenever you are asking the question – “Is it good to invest in NFO?” or “Should I invest in NFO?” you should first understand the downsides of the fund first.

  • Firstly, there is no proven track history of the fund. There are multiple funds in the market with an existing track record that you can rely upon.
  • NFOs come with low initial costs. So, if you wish to invest in a particular scheme, opting for the same during the NFO period could be wise.
  • You can always get the units at a slightly higher cost after the offering period since there would be a performance to showcase.

This could be compared to an IPO of a stock. The initial price is kept low for early investors, whereas the price is expected to rise. However, there is no guarantee as the NAV is subject to market movements.

Now, let’s decipher “why is it good to invest in NFO offerings?”

Existing mutual funds have the advantage in terms of information and performance, but NFO provides a new marketplace. Investing in NFOs can prove advantageous if you conduct your research on the fund. To reap the advantages of NFOs, interested investors must first grasp what they are. These new funds have gained in popularity over time, particularly in terms of number and quality. Before participating in an NFO, consider the fund house's credibility, the fund's objectives, the prospective returns of similar funds already available on the marketplace, your investment goal, and the lock-in period for close-ended new funds. Although NFOs have the ability to be tremendously successful, expecting every new fund to achieve this is unreasonable.

Types of NFOs

NFOs are classified into two types: open-ended new funds and close-ended new funds. The former category allows the investor to withdraw money from the fund at any given point while the latter comes with a pre-set maturity period before which the investor will not be able to withdraw any money.

This new fund offers fresh investment routes with profit potential from the impending market changes. These NFOs are open and accessible to the general public for a very limited period, within which the investors need to participate at the set offer price. After the period ends, the NFO will be available, but new investors need to buy the units at a higher set price.

Now, let’s get into the difference between NFO and Mutual funds.

NFO vs Mutual Fund

Every mutual fund scheme begins with an NFO. As it grows older, its history begins to accumulate. An existing mutual fund contains a portfolio, which allows you to examine what the fund has previously invested in and how it performed in rising and declining marketplaces. Therefore, an NFO is similar to a fresh beginning in that you only know the person who will be handling your investment and you purchase a plan that the fund promises. This is the difference between NFO and mutual funds.

So, is it good to invest in NFO? Now, a large portion of a fund's success is largely reliant on its beginning position. If the plan is launched while the marketplace is down and then rises, it will perform nicely, and vice versa. So, if you understand the NFO vs Mutual Fund problem and the market situation, you will be able to make smart decisions.

Newly Launched NFOs

Here is a list of newly launched NFOs:

Name of the SchemeOpening DateClosing DateOffer Price
AXIS NASDAQ 100 Fund of Fund - Regular (IDCW)07-1021-1010
AXIS NASDAQ 100 Fund of Fund - Regular (G)07-1021-1010
ICICI Pru Transportation and Logistics Fund-Reg (IDCW)06-1020-1010
ICICI Pru Transportation and Logistics Fund-Reg (G)06-1020-1010
LIC MF Multi Cap Fund - Regular (IDCW)06-1020-1010
LIC MF Multi Cap Fund - Regular (G)06-1020-1010

What type of Mutual Funds can One Invest In?

A mutual fund is a reliable and safe investment opportunity. People invest in mutual funds because they can afford to take risks while they cannot afford to lose their hard-earned money. Mutual funds are easy to open and maintain accounts with, requiring fewer costs and minimal paperwork to start investing. If your goal is long-term wealth building, mutual funds will help you diversify your portfolio and create your own financial independence. 

  • Equity Funds:
    These funds invest in equity shares of multiple companies. They are usually high-risk, high-return investments.

  • Debt Funds:
    These funds invest in debt investments like government bonds and company debentures. They are usually low-risk, low-return investments.

  • Money Market Funds:
    These funds invest in more liquid instruments like CPs and T-Bills. They are considered highly safe investments.

  • Index Funds:
    These funds invest in assets that represent a particular exchange index and attempt to mirror their returns.

  • Balanced Funds:
    These funds invest in multiple types of assets to balance out risk and return ratios.

  • Income Funds:
    These funds invest in fixed-income investment vehicles like debentures and bonds in order to offer regular income to investors.

  • Fund of Funds:
    These funds invest in other mutual funds and depend on their performance to provide returns to the investors.

  • Sector Funds:
    These funds invest in particular market sectors. The risk and return of these funds depend largely on the sector chosen.

The Bottom Line

Hopefully, this article was able to answer the question – “Is it good to invest in NFO?” Like all investments, there are pros and cons to investing in NFO schemes. If you can make your way past the risks and into the unknown, then you just might be on the road to a healthy financial future. Make sure you understand the “NFO vs mutual fund” debate before investing. If you decide to participate in these funds, you can invest in Mutual Funds through Tata Capital's Moneyfy.

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