Does investing in NFOs make sense?
To the best of my knowledge it does not make sense to buy Mutual funds at NFO as they invest in a basket of stocks on a particular date. Hence whatever the price of the stock that was available on the purchase date you get. You could do the same after the NFO, as the NAV depends on the closing value of the basket of stocks.
The idea of buying IPO is that you may get the advantage of listing gain. There is no such thing in a mutual fund NFO.
Something which even I have not understood. There has to be some benefit for the ones who buy in NFO.
The amc has to come out with a nfo because they need to start somewhere. However, they take liberty to mis sell as well saying investors get the units at face value. I dont think i can call this mis sell but they take liberties. Naive investors think they get a good deal as their nfo unit is priced at 10 or what ever the price it represents. They think this is the base level and can only increase.
In fact nfo will not have the history of performance data of the fund.
Not sure if there are any other hidden benefits.
And most NFOs are launched during a bull run when markets are peaking.
I wanted to know this too. When icici launched IT etf, I wanted to know how it’s different from buying from secondary market. So I put a small amount. All that was missing was some of the charges which are there only in secondary market like brokerage, exchange transaction charges, STT and so on. After few day I gotta know the number of units that were allotted to me.
Other than this first few day bid ask spread was on the higher side until market markets covered it.
Would like to hear from @Bhuvan if these are all the benefits that are there.
For most open ended funds, it does not make any sense to invest in NFOs
NFOs are done mainly to garner AUMs by AMC, also for NFO, AMC can charge relatively higher expenses, which can be used for marketing and giving out slightly higher commissions to distributors. Hence distributors generally tries to push it on gullible investors.
Also lot of dumb investors think that since NAV is rs. 10, they are getting it cheaper and get lured to NFO.
DSP mutual fund has good article on this:
Check this out: Investing in NFOs - 3 questions you should ask first