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Bloomberg Quint
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Why New Fund Offers In Mutual Funds Have No Cost Advantage And May Be Risky
- New Fund Offerings (NFOs) may not be suitable for all investor portfolios despite the strong traction it has among investors.
- Investors have poured their money into NFOs in hopes of a cost advantage and more, despite it not being an advantageous option.
- Fund houses have multiple channels, marketing strategies and buzz during launches to gain visibility and lure new investors.
- Fresh capital coming can also be a reason for inflow into NFOs compared to existing schemes.
- The expense ratio of NFOs may be similar to existing schemes, and there is no cost advantage to these schemes, as this depends on the issue size.
- The advertised cost advantage of NFOs may not exist due to lower NAV despite the investor getting allocated double the number of units due to lower NAV.
- New Fund Offerings do not come with data on performance and consistency and could be a new strategy or from the same asset class as the investor's current mutual fund investments.
- The notion that NFOs and IPOs are similar is false, as an initial public offering raises money for its use and an NFO raises money to run a mutual fund scheme.
- Buying NFOs may not be ideal but NFOs are not altogether bad nor good and buying NFO requires proper consideration of its advantages and risks.
- Investors should evaluate NFOs go beyond the buzz and marketing to determine whether it fits their financial goals and portfolio.
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