Podcast: NFO Investing – Everything you need to know!

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What is this episode about?

In the thirteenth episode of the Prime podcast, host Bhavana Acharya dives into the world of New Fund Offers (NFOs) in the Indian market. With over 200 new funds introduced in the past year, this episode explores whether investors should consider these NFOs and outlines a practical guide for evaluating them.

Bhavana begins by acknowledging the recent focus on Initial Public Offerings (IPOs). However, she highlights the parallel stream of NFOs, emphasizing that over 100 funds were launched in the past six months alone.

Read out take on the recent TATATECH IPO here.

The podcast categorizes NFOs into four main types:

AMC’s gap fillers: Funds introduced by asset management companies (AMCs) to complete their product offerings. Bhavana advises caution, suggesting that these funds often lack differentiation from existing options and may carry higher risk due to lack of performance or portfolio history.
Passive Funds: Including both equity and debt index funds or ETFs, Bhavana emphasizes the importance of evaluating index performance, trading volumes, and tracking error. She warns against solely relying on low expense ratios and encourages investors to wait for information on trading volumes, particularly in ETFs.
Thematic or sector funds: Bhavana cautions that these funds are high-risk and require a deep understanding of market cycles. Timing is crucial, and she advises against investing in thematic NFOs unless investors are well-versed in the sector’s dynamics.
International Funds: While international funds are less common, Bhavana suggests focusing on passive options for easier tracking and understanding. She stresses the need for genuine diversification rather than blindly investing in any international offering. The two articles on US debt funds she mentions in this segment can be found here and here.

The podcast concludes with three crucial questions investors should ask before considering an NFO:

Does the fund’s strategy require a wait-and-watch approach for execution and portfolio fit?
Is the fund genuinely different from existing options in the market?
Do you genuinely need to add this fund to your portfolio?

Bhavana highlights the importance of avoiding the misconception that NFOs offer a unique advantage or are automatically a good investment. Instead, investors should carefully assess the fund’s strategy, performance, and necessity within their overall portfolio.