Investing in New Fund Offers? Use this checklist first

Investing in a new fund offer or an NFO can be an exciting prospect. After all, you have the opportunity to invest in newly launched funds at low cost and develop your own portfolio from scratch. While it can be tempting to invest in NFOs immediately, especially if the scheme seems to have a unique perspective, several crucial factors should be taken into consideration first.

From evaluating the objective and risk profile of an NFO to the fund management team and asset allocation strategy, here is a useful checklist that can help you choose NFOs with the potential to yield positive outcomes for your portfolio.

1. Is the NFO offering a unique theme? 

There are already many mutual funds available with various investment strategies. Thus, ensure that the NFO you are considering offers a unique theme. This way, you can be sure that your investment will be diversified with new themes and will not overlap existing holdings in your portfolio.

For example, if you are interested in environmental initiatives, you may want to look for an NFO focusing on green energy or sustainable investments. Similarly, if you are looking for an NFO with an international focus, it would be unwise to invest in an NFO that only invests in domestic companies. 

2. Fund objectives 

Read the NFO document an AMC offers while launching it to understand the fund objective better. The document may contain information about its scheme, its asset allocation, benchmark index, risk level, etc. This information can help you determine whether the fund fits your mutual fund investment strategy and goals.  

Remember that NFOs are newly launched and don’t have their own historical performance data, so it is essential to base your evaluation on the performance of existing funds in the same class or type. 

3. Fund’s asset allocation and risk level  

The asset allocation of a mutual fund scheme tells you what percentage of assets will be invested in stocks, bonds, etc. Your tolerance for risk should determine which type of fund you choose. 

For example, if you prefer low-risk investments that provide steady income, you may want to consider a debt-oriented scheme. On the other hand, if potential capital appreciation is your primary goal, equity-oriented funds may be more suitable for you.

4. Check the reputation of the AMC launching NFO 

Before investing in an NFO, research the reputation of the AMC or fund house that is launching it. AMCs are required to be registered with the Securities and Exchange Board of India (SEBI). This can provide an indication of how credible the company is, and also that it adheres to regulations which protect investors from potential risks. 

Moreover, remember to check reviews by other investors online and gather feedback from your network. This additional step can help you make an informed decision about which new fund offer in mutual funds best suits your goals.

Final words

Ultimately, investing in new fund offers is a prudent decision only when it meets all the criteria included in your checklist and if you are convinced that it can bring maximum returns and also fit into your targeting goals. Consider adding those NFOs that have unique themes, align with your risk profile, have realistic investment objectives, and, most importantly, can add value to your mutual fund portfolio.

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