How to select NFO

NFO that is new fund offering is the initial offer to the investors for subscription to a new mutual fund. This is made to raise the capital from investors to invest into the various asset classes as these NFOs don’t have any history it becomes difficult to analyse the NFO and select them.

So let us see how one can select a NFO,

Anything unique

There are plenty of mutual fund schemes available with prior historic performance details. So investors should always seek a new and unique offerings with any new fund offer. As investor is taking an extra risk while investing into the fund without any past history, so if the fund is offering something new then one can look into the further details this can be the first filter to select a NFO.

Costs

Cost is the second most important aspect to look into while selecting the NFO. Costs are directly related to returns, that is, if the costs are high then the returns will be minimised accordingly. Many a times as the asset size increases many time fund houses reduce the costs so investors should also see the track record of fund houses of bringing down the expense ratio this can be a tedious job as one have to look all the fund factsheets and evaluate the expense ratio.

Lock-in or type of the fund

While selecting an NFO investors should always look at the terms and conditions of the lock-in and the type of the scheme that is close-ended or open-ended. As closed ended funds comes with the fix tenure and are listed on the exchange, these investment can be sold only if there is liquidity or else one need to take hit on the market price which can be much lower than that of the prevailing net asset value. However, lock-in period gives an idea of the liquidity of the scheme so one must consider both these points while selecting a NFO.