New fund offers have the potential to gain momentum significantly once they are being traded through a successful campaigning. These NFO's can be open-ended or close-ended that is, under open-ended, you can enter the market and purchase any number of share through mutual fund schemes anytime while under close-ended, the subscription to make an investment is time-bound where the issuance of shares is also limited.

The subscription to any NFO starts with Rs 10, which can also be driving motive for an investor to make the investment and purchase more units. However, you should ideally track all the factors before subscribing to any NFO.

Investors need to exercise caution before committing their money to NFOs. "We fail to find a compelling enough reason for investors to opt for newly launched funds, over funds that have well-established track records of navigating challenging market cycles. Anecdotal evidence tells us that most investors still invest into NFO's for all the wrong reasons – topping the list is the fallacious belief that 'a low NAV is cheap', and it is, therefore, better to invest into an NFO because it has a net asset value of Rs. 10. As the sad plight of most of the NFO's launched shortly before the carnage of 2008 will show, this is far from the truth! Some of these NFO's are still tottering in the red, even a decade later

If an NFO fails to collect enough funds, its marketing and distribution costs would be apportioned over a smaller asset base, leading to a higher expense ratio and compromised returns. This risk is more imminent in the case of NFO's launched by smaller AMC's that do not have the marketing firepower to reach sizeable swathes of the investing community. More equity-oriented NFO's are launched when markets have already gone up significantly, with the intent of cashing in on buoyant retail investor sentiment more than anything else. This may lead to a poor initial investment experience for uninformed first-timers who were unable to resist the allurement of those colourful billboards

The only time an NFOs might be worth considering is if it's one that explores a completely untouched theme that fits in with your investment portfolio. Considering the plethora of funds already available today, the launch of such an NFO remains quite a remote possibility.     

Avoid NFOs If a proven long term product in the same category already Exists           

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