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AxisDirect-O-Nomics
Aug 31, 2017 | Source: ET
As the equity markets head upwards, new fund offers from mutual funds are on the rise. They attract investors with catchy and thematic advertising, pushed by various fund houses and distributors. NFOs could be open-end or closed-end for segments such as debt, fixed maturity, hybrid funds and equity.
What does an NFO mean? Why do mutual funds launch them?
New Fund Offers (NFOs) are first time subscription offers for a new scheme launched by an asset management company. It is launched to raise capital from the public in order to buy securities like shares or government bonds from the market.
An NFO is usually launched by a fund house to complete its product basket, or if there is a demand from investors for a particular investment theme. Closed-end funds, which generally have tenure of 3-3.5 years, can be bought only during the offer period, while an investor can purchase units of an open-end fund anytime.
Is an equity IPO different from an NFO?
Yes, there are many differences between an Initial public offering (IPO) and an NFO. IPOs are often issued by companies seeking capital. An NFO from a fund house just pools in money from investors and invests that in a set of securities, based on its stated strategy. IPOs are priced at a premium to the face value, but an NFO is always available at Rs 10 per unit.
Should investors put money in an NFO? Is there any advantage?
Many investors subscribe to an NFO primarily because its net-asset value (NAV) is priced at Rs 10 per unit, compared to open-end schemes with higher NAVs. In the case of existing schemes, the portfolio and the fund manager's style of investing are known. But in an NFO, one does not know several things about the scheme, such as what the portfolio will look like and how much assets the fund will gather. Experts say investors should invest in an NFO if it has something different to offer from the existing funds universe, or something which cannot be achieved through an open-end fund.
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AxisDirect-O-Nomics
Debt
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