Should I invest in NFOs of Mutual funds (2021)

 NFO, New Fund Offering, NFO Mutual Fund |                            

Should I invest in NFOs of Mutual funds (2021)

PREFACE

•     INTRODUCTION

•     WHAT ARE NFO'S

•     WHAT ARE BEST SIGNIFICANCE OF NFO?

•     AMC

•     IPO VS NFO 

•     VALUATION

•     SHOULD YOU INVEST IN NFO 

Introduction-:

Today we discuss about " NFO " new public offering  what is it how it works is 

IPO and NFO are same or not benefits and its types or nfo mutual fund before we

 gonna discuss about IPO we already discussed in our previous blog if you are regular

 to this website then ok otherwise you can read briefly link is given below 

what is ipo how to analyse ipo of any company?

without wasting  more time lets start 

what are NFO's?

before we start on nfos we are also going to talk about top five things that

 we should check before investing in nfos 

1. The very first one is  nfo is a new fund  offer like a company comes up  with an

 ipo  company is wanting to issue the shares of their company for the very first

 time to the public then they say we are coming up with an ipo of shares similarly if

 a mutual fund wants to come up with the units of their mutual fund for the ver first

 time then we say that it's the nfo of any mutual fund 

so are there any nfos which are currently open in the market for

  subscription answers yes

 how many nfo are open?

 hsbc medicare fund we have access value fund mirai asset sp 500 top 50

 etf we  have icsa pro alpha low volume 30 etf fund of funds borrowed our

 business cycle fund and all these nfos that i discussed right now all have just

been opened up for subscription actually ipos are raining we had two ipos in this

 month we are hardly not  even first 10 days into this month but two ipos have come

 already similarly five nfo have come already 

what is the best significance of nfo?

  as i mentioned whenever any amc ( asset management company ) so all one is

 a mutual fund and one is an amc hundred percent  here we have a mutual fund and

 here we have an amc i'll give you a simple example hdfc is a mutual fund and hdfc

amc it's an asset management company now you might be wondering what is the

 role of this amc as the name itself suggests amc manages the assets manage that

 manages the assets means what they will decide the hdfcamc will decide that

"

if so much money is collected from the investors then which stock shall we

buy shall we buy some debentures or not shall we buy some large cap on shall we

buy some medicare funds shall we buy some small cap funds  

                                                                                                                  "

who is going to take the decision the decision is going to be taken by amc

what is amc ( asset management company ) ?

 

it is the asset management company but then you might be wondering let's

 understand the process all in all i am a normal investor i want to invest in a mutual

 fund can i decide whether my money should go in stocks my money should go in

debentures or is the amc completely going to have a control over that answer is i

 have a control over that why i can choose what type of mutual fund i want to invest

 into  for example 

"

i can choose to invest in an equity mutual fund i can choose to invest in a debt

 mutual fund i can choose to invest in a hybrid fund

what do we mean by hybrid fund

 some equity some debt  simple delia                 

                                            

                                                                    "

one more example 

"

            if i say that i want to invest in an equity fund and in that also i can specify i

 want to invest in a long i want to invest in a large cap equity fund i want to invest in

 a medicare equity fund i want to invest in a small cap equity fund  so does an

 investor have a control over where his or her money should be parked answer is

 absolutely yes 

                               "

                              

so please understand as an investor i said that i want my money to be parked in a

large cap fund agreed but then which large cap which large caps should money be

 parked in larsen and should money be parked in hdfc should money be parked in

 hdfc bank or what that decision is not taken by hdfc mutual fund that

 decision is taken by hdfc mutual funds amc hdfcamc takes the decision

suppose i want to invest in an equity fund i want to invest in a large cap equity

fund but finally the amc decides in large cap which large caps will be chosen

when will you buy these large caps when will you sell these large caps each and

every decision of this kind is taken by the amc amc means finally the fund

manager will take a decision but fund manager is an employee of whom fund

manager is not an employee of hdfc mutual fund, fund manager is an employee

of hdfcamc 

who launches the nfo?

 so whenever an nfo is to be launched by amc launches the nfo so in our example

hdfc is not going to launch the nfo hdfc amc will launch the nfo in the market earlier

now one more very important point

can nfos be announced for mutual funds of the same category ?

let's  understand hdfcamc already has a mutual fund which is focusing on a nifty 50

 mutual fund so this mutual fund is like an index mutual fund mutual fund is going

 to replicate what an index okay so please understand one more time hdfc already

 has a scheme which replicates nifty 50 can hdfcmc come up with another nfo

which focuses again on nifty 50 whenever an nfo is coming nfo has to be of a similar

 theme or of a new theme it has to be of a new theme i hope this point is absolutely

 clear recently baroda business cycle fund is one of the funds   i'm sure everyone

 knows about

amphi amps association of mutual funds in india like a regulator to mutual

funds.

now please understand "one mutual fund house one amc cannot have two different

 schemes with the same theme with the same objective "

 Ipo versus Nfo 

an ipo a normal company a limited company will issue an ipo nfo is issued by amc 

" asset management company " 

what is issued when i'm talking about an ipo of a company shares will be

 issued and if i'm talking about an nfo units of a mutual fund will be shown 

3. third one is valuation if you have read my ipo blog many times i've already write

 about valuation

can i value a company yes but can i value an nfo no

why can't i valuation an nfo but an ipo ?

 nfo is nothing but a scheme again what is that nfo scheme going to do it is going to

 collect money from you and me and it is going to invest it somewhere so the nfo

 itself doesn't have any valuation so i can't do pb valuation of the nfo can i do

valuation of a company yes because company has its own they do have their own

 assets they do have their own liabilities when they are coming up with an ipo only

 so that is why i can do a valuation of ipos but i can't do a valuation of nfos 

 again very important about nfo

 what level does the fund manager enter into any stock ?

so forexample 

"

please understand this very practical scenario market is at an all-

time high  a new nfo is launched if you people invest in therefore they are going to

 collect money from you all and now it is going to invest in the market at which level

 at the all-time high level so what is important whenever you're checking the nfo at

 what level has the fund house entered into various shares right

                                                                                                                      "

           we do have an indicative valuation of a company we say that the company is

 valued at whatever lack rupees whatever crew rupees whatever billion rupees we

 can have a valuation of any company we call it as enterprise valuation because

 nfo is not a company it will no be valued as such but generally nfo will come with a

 unit value unit value means what for those who have been investing already they

 know that 

       generally nfos come with a 10 rupees face value they'll say that we are going to

 issue units at rupees 10 now why 10 why not 100 why one we are going to discuss

 that in the next slide  so in nfo there is no separate distinction as such you're just an

investor so these are few important points  so i hope you

understood all the key points of differentiation between an ipo and an nfo 

Should I invest in NFOs of Mutual funds (2021)

what can be a basic checklist check at least these five points you should check before you invest in any nfo what could be a base checklist 

• the very first one is an amc

 example                  that i give also hdfcmc is coming up with an "nfo" at least the fund houses at least the "amc" is known so generally the fund house and the amc is of the same group company so as  an example 
                          " hdfc "hdfcamc "they'll be from the same group company so check if at least the "amc" is well known or not do they have a good experience in managing various other funds do they have a good growth in its aum, aum in nothing but assets under management so please understand a base thumb rule higher amcmore popular the fund is same logic 
                        i can apply for any mutual fund houses asset under managementhigher the " amc "means what more and more people are investing more and more money in that mutual fund more and more money they have it means that more and more people are showing keen interest same thing more and more people in arestaurant more and more people in a investing in a mutual fund like i saidthis restaurant might have good food i might say this mutual fund might be giving good returns more people are having at least faith on this aum on this amc so simple thumb rule i'm telling you if you don't understand anything about mutual funds
 first thing you have to check how much is the aum asset under management the thumb rule first one is simple 

• second point check how is the fund manager 

is the fund manager renowned or not which schemes the fund manager has managed in the past has he given decent enough returns in the previous in the previousschemes which he has managed so understanding the fund manager his qualification his experience all these points are also important while you're doing a base checklist for nfo third one is an investment strategy if you feel that the nfo's investment strategy is to invest only in risk free assets only in debt one more quick example           "
              if i believe that the fund house is investing in growth companies and i also want to invest in growth companies can i say that the fund manager strategy and my strategy match in that case i should go ahead and invest in that nfo so please understand my vision of investing and the fund manager's vision fund manager strategy of investing should match then and only then i'll have a checkpoint onshortlisting any nfo where can you find the strategy  by the way in the base of a document at least where is the fund manager going to you know invest  what is thisstrategy going to be what are these objectives it's mandatory to discussthis in the offer document so what you have to do is just read the offer document and then you will understand what is the investment strategy of the fund manager

• one more very important point exit load

 there are some funds which may charge up exit load if you exit within few daysthere could be some mutual funds which might say if you exit within first threemonths we will put an exit load on you if you invest if you exit within six months we'll put an exit load on you so you should be aware what scenario will you be charged an exit load and the last point is return and risk potential just try and gauge whether your risk potential and your risk appetite and how the mutual fund is investing whether that matches or not going ahead with just last one or twopoints remaining 


top three things to be considered  before investing in an nfo 

1. just try to see whether you're investing in a new theme or not super important point 

i'm directly telling you in my portfolio i don't have even one bank's share disclosure alert in my portfolio can i compensate for that yes i have invested in a bank nifty in my mutual fund so in simple words i've invested in a mutual fund which invests in banks
so here i don't have a direct exposure to investment in bank but i have an indirect exposure to investing in banks so try and check whether you're you're not duplicating your portfolio  don't try and duplicate your investment try and ensure whether you are diversifying or not you are investing in a new theme or not also one more thing try to see whether this new theme is not  but i have mutual funds which invest in banks  

 2. second one is conviction 

 you should be convinced with the objective you should be convinced with the

strategy of how the nfo is positioning them how the amc is positioning themselves if

i have that conviction then and only then i should be investing in that nfo

3. Many NFO companies advertise that they are starting their share sale

  with only  Rs 10, in such a situation new investors get stuck if they are

 starting with Rs 10, then invest in it only knowing the term and

 condition behind it.