Retail investors are increasing rapidly. The public is also constantly looking for an indirect route to make investments with better returns. One such common way is mutual funds. As days go by, a new range of investment models are arising daily. Right now, the big debate is choosing between a New Fund Offer (NFO) or a Mutual Fund.
Understanding the underlying differences between NFO and Mutual funds allows you to find a significant choice. So that this article uncovers brief notes on both things and makes your job easy. Without any further discussion, let’s delve into the topic now:
What is an NFO?
The term NFO means New Fund Offering, which is a new investment objective offered by AMC or an Asset Management Company. The scheme is introduced to the market only after the AMC confirms that there is no similar investment objective. It is available in two types: Close-ended funds and Open-ended funds.
Open-ended funds are open to purchase and sell anytime whereas the close-ended funds are available to purchase only during NFO and can be benefited after the maturity period.
What is a Mutual Fund?
A mutual fund is an efficient investment program that pools money from many investors and then the fund manager invests them in different securities and investment options. It may be of any kind such as bonds, short-term debt, or stocks.
However, the investor becomes the owner of certain units while investing in a mutual fund. They can also buy shares to generate income.
Difference Between NFO and Mutual Fund
The main difference between an NFO and a Mutual Fund is that an NFO is a brand new fund, like a startup in the investment world. It hasn’t built a track record yet, so you can’t see how it’s performed in the past.
A Mutual Fund, on the other hand, is more established, like a company with a history. You can look at its past performance to see how it’s done before you invest.
| Feature | NFO (New Fund Offer) | Mutual Fund |
|---|---|---|
| Definition | The launch of a new mutual fund scheme by an Asset Management Company (AMC). | A kind of investment where a bunch of people put their money together, and then that money gets used to buy stocks, bonds, or other stuff like that. |
| Stage | Inception – New to the market. | Established – Has a track record. |
| Investment Strategy | May be a new strategy or a unique take on an existing one. | Established strategy with a performance history. |
| Track Record | No past performance data available. | Has a history of performance that can be analyzed. |
| Unit Price | Units are typically offered at a fixed price (often ₹10) during the NFO period. | Unit price fluctuates based on market movements. |
| Availability | No past performance data is available. | Available for investment anytime. |
Factors to Consider When Investing in NFO or Mutual Fund
If you decide to invest in a mutual fund or NFO, these are the primary factors that you need to consider. It helps investors to determine whether the return and risk factors are worth the investment.
Risk and Return Profile
No investment plan in a mutual fund or NFO is guaranteed higher returns and is risk-free. Always ensure the plan you are choosing and how the marketplace situation is.
The risk of investment in mutual funds is determined by several factors such as bonds, stocks, and more. However, the greater the returns, the greater the risk associated with it.
Investment Horizon and Objectives
The investment objective is common for every fund. Investors are advised to analyze its objective to understand whether it is aligning with your financial position and risk profile. Similar to other mutual funds, NFO is available in close ended or open ended.
As mentioned earlier, an open-ended scheme can purchase and sell all the time while a close-ended scheme has a lock-in period and can be redeemed after the maturity period. Hence, the investor has to check out the plans in all aspects before investing in a mutual fund or NFO.
Market Conditions and Sentiments
NFO provides new opportunities daily. Market status is key to understanding whether your time of investment in the fund scheme is right or not. It is important to figure out the previous mutual funds and schemes that clear your doubts and keep you away from higher risks.
Regulatory Environment and Company Fundamentals
Mutual fund is managed by SEBI (Securities and Exchange Board of India). Based on the plan you choose, the principles and regulations will be changed in both mutual funds and NFO.
So the investors are essential to assess the reputation of the fund and past performance in different market cycles. Additionally, evaluate the expertise and experience of the fund manager before investing.
Conclusion
All the factors and details we mentioned in this article will aid investors in making better decisions. Consider the fund accompanied with features and benefits that tend to avail good returns with a lower risk.
Understanding the marketplace condition is very important to keep yourself safe in all kinds of situations. Hopefully, this article makes you clear about the key difference between Mutual fund and NFO.
FAQs
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How do NFOs and Mutual Funds Differ in Terms of Investment Stage?
Existing mutual funds provide a history of record and contain established portfolios but may cost a higher entry fee and saturated market position. In contrast, NFOs offer different new opportunities but no record of performance data.
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Are There Any Risks Associated with Investing in NFOs and Mutual Funds?
No investment plan can be enjoyed with zero risk. During the NFO subscription period, investors are urged to purchase units at available face value. However, if the NFO is listed, the unit value will be determined by the market.
While it is higher than the intrinsic value of the assets, you may tend to uncover potential risk. Investment in mutual funds involves investment risks like liquidity risk, trading volumes, and possible loss of principal or settlement risk.
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Can NFOs Be Converted into Mutual Funds?
Yes, investors can convert NFOs into mutual funds. If the NFO period ends, investors can continue to invest in the mutual funds.