Why is there a rush of NFOs?

• Follow

In the second quarter of current financial year, collection through NFOs of mutual funds has increased fourfold, reaching up to Rs 22,000 crore rupees. So, why is so much investment taking place in new fund offers for mutual funds?

Why is there such a significant investment in NFOs? Will there be more NFOs in the future? Should you consider investing in NFOs?

During the September quarter, 48 schemes were launched and  22,049 crore rupees were collected through these schemes. Before this, in the June quarter, around 25 NFOs had collected a mere Rs 5,539 crores. The highest number of schemes i.e 13 were launched for sectoral funds, and 12 for ETFs.

Sectoral funds gathered around Rs 5,725 crores, multi-asset allocation funds collected Rs 4,791 crores, multi-cap funds accumulated Rs 3,277 crores, and liquid funds collected approximately Rs 3,083 crores through NFOs.

During this period, the schemes that gathered the most money include ICICI Pru Innovation Fund, Baroda BNP Paribas Value, Bajaj Finserv Flexi Cap, HDFC Defence Fund, and HSBC Consumption Fund.

The main reason for higher investment in NFOs is strong market sentiment. Typically, when there is a bullish trend in the market, mutual funds also come up with more NFOs.

In such times, investor sentiment is also strong, and companies try to capitalise on it to attract more funds. Now, even regular investors are showing higher risk appetite, perhaps for this reason. A large number of investors have put money into high-risk products like thematic or sectoral funds.

When the economy is doing well, economic activities increase, and sectoral funds tend to offer better returns compared to ETFs or index funds.

Another reason for the increased number of NFOs is that many new asset management companies, such as White Oak, Bajaj Finserve, Helios, Zerodha, have recently entered the market.

Now if new companies have entered, it’s natural that they would start new schemes in the equity and data segments thus bringing NFOs.

Experts suggest that going ahead, there could be many more NFOs in thematic, sectoral, or passive categories. Recently,  DSP Banking & Financial Services Fund and Kotak Healthcare Fund launched their NFOs.

In the coming months, several new schemes like Bajaj FinServ Balanced Advantage and Axis India Manufacturing are ready to be launched.

Now comes the real question,  should you be affected by this record investment? Should you invest in any NFO?

Viral Bhatt, founder of Money Mantra, says that the sentiment of the entire market has improved, leading to increased investor interest. The recent bullish trend in the stock market has created a favorable environment for NFOs. Asset management companies are introducing unique products to attract investors.

If you want to invest in an NFO, understand your investment goals and risk appetite, understand the fund’s investment strategy, fees, and track record. Diversify your portfolio by investing in various asset classes and fund categories. Seek the help of a financial advisor if needed.

On the other hand, some experts advise investors to avoid investing in new fund offers and instead invest in a scheme later.

The reason for this is that new schemes don’t have a track record, making it difficult for you to assess their performance.

So, overall, it seems better to consider investing in a scheme after observing its performance over a few quarters rather than jumping into any NFO.