Every year, mutual fund houses launch new fund offers (NFOs) to introduce investment options tailored to current market themes or strategies. In 2025, India saw 222 NFOs raise around ₹63,631 crore, though this was lower than in 2024, indicating that investor interest in new launches has softened compared with past years.
This raises an important question: is it good to invest in NFO mutual funds? This blog discusses how NFOs work, their advantages and risks, how they compare with existing mutual funds, and the type of investors for whom NFOs may be more suitable.
What Is an NFO (New Fund Offer)?
An NFO, or New Fund Offer, represents the introductory phase where an asset management company launches a new scheme to raise capital from the public. During this limited subscription period, investors can purchase units at a fixed offer price, typically set at ₹10. Once this period closes, the fund is listed and opens for regular trading at market-linked prices based on its Net Asset Value (NAV).
Is it Good to Invest in NFO Mutual Funds?
Investing in NFO mutual funds offers exciting opportunities for early entry into innovative strategies at a low initial NAV. In 2025, seven new funds exceeded 20% amid 189 launches. FY25 saw 245 NFOs collect ₹1.09 trillion, a 63.5% jump from FY24, driven by thematic funds capturing 71% of H1 flows. These funds enable portfolio diversification and potential long-term growth, making them a positive choice for forward-thinking investors.
Key Factors to Consider Before Investing
Before committing capital to a newly launched scheme, it is essential to evaluate specific parameters that determine its potential viability, such as:
- Investment objective: It is crucial to check the specific goal of the scheme to see if it focuses on capital growth, regular income, or tax savings.
- Asset allocation pattern: You must understand where the money will be invested, such as in large companies, small companies, bonds, or gold, to assess the risk.
- Investment strategy: The documents explain the specific approach the fund manager will use to select stocks or assets to meet the scheme’s goals.
- Lock-in period: Some new offers, especially close-ended ones, have a mandatory period during which you cannot withdraw your money, which restricts liquidity.
- Fund manager experience: Since there is no past performance of the scheme, checking the qualification and track record of the person managing the money is vital.
- Benchmark index: The fund is compared against a standard market index, which helps you understand the expected performance standards.
Advantages of Investing in NFOs
While they carry certain risks, new fund offers can present specific benefits for investors looking for targeted advantages, as follows:
- Access to new themes: NFOs frequently introduce innovative sectors, emerging themes, or unique strategies that allow investors to diversify into market segments not covered by existing funds.
- Closed-ended opportunities: They provide the only entry point for closed-ended funds, which have a fixed maturity period and do not accept new investments after the initial offer closes.
- Flexible investment mix: Fund managers starting with cash have the freedom to buy securities at current market valuations without the burden of managing legacy assets or previous poor performers.
- Disciplined lock-in: Close-ended NFOs impose a mandatory lock-in period, which can act as a mechanism to prevent investors from making impulsive withdrawals during short-term market fluctuations.
- Diversification: Adding a new fund with a distinct investment style or asset class can assist in spreading risk across a broader range of market instruments.
Disadvantages & Risks of NFOs
There are several possible downsides and uncertainties associated with subscribing to new fund offers which include:
- No track record: The biggest risk is the absence of historical data, making it impossible to analyse how the fund performs during market ups and downs.
- Liquidity restrictions: Investors cannot redeem their units during the NFO period, and closed-ended funds lock capital away for a specific duration.
- High expense ratios: New funds often have to spend heavily on marketing and setup, which can lead to higher management fees compared to large, established funds.
- The price myth: Buying at ₹10 does not mean the fund is cheap, as future growth depends entirely on the performance of the underlying stocks.
- Uncertain performance: The new theme might not perform as expected, and the fund has not yet been tested against a benchmark in the real world.
NFOs vs Existing Mutual Funds
A detailed comparison below showcases the distinct features of New Fund Offers versus existing mutual funds schemes:
| Feature | NFO (new fund offer) | Existing mutual funds |
| Historical data | No past performance data is available, making it difficult to predict how the fund will perform in its new theme. | Proven historical data exists over significant periods, serving as evidence to estimate future return potential. |
| Cost of investment | Often has a reduced overall cost with no entry load; exit loads usually apply only if exiting before the lock-in period. | The overall cost can be higher as companies may charge higher fees due to the established trust and high demand. |
| Subscription price | Prices are kept low (affordable) to attract investors, as new schemes often face difficulty in building immediate trust. | Allows disciplined investment with small amounts (e.g., ₹500) via SIPs, depending on risk appetite and asset allocation. |
| Nature of fund | Similar to an IPO, it is a first subscription offer used by AMCs to fund securities purchases and achieve AUM goals. | Represents an ongoing scheme that offers the benefits of diversification and helps investors maintain financial discipline. |
| Trust factor | These schemes face challenges in building trust initially as they are new entrants without a track record. | Investors are often more willing to invest due to the established trust in the scheme and expectations of high returns. |
| Suitability | Considered a potential opportunity for investors willing to take risks who may have limited capital to bet. | Better suited for investors focusing on specific financial objectives, risk appetite, and disciplined investing. |
Who Should Consider NFOs?
Certain investors may find NFOs suitable depending on their financial goals and requirements, such as:
- Experienced investors: Individuals who possess the skill to analyse a fund’s strategy and mandate without relying on past performance charts are better candidates for NFOs.
- Diversification seekers: Investors looking to add a specific sector, theme, or asset class to their portfolio that is currently missing from the list of available open-ended funds.
- Long-term planners: Those who are willing to stay invested through lock-in periods in closed-ended funds to potentially benefit from a full market cycle or specific strategy.
- Risk-tolerant individuals: Investors who are comfortable with the uncertainty of a new portfolio and the absence of historical benchmarks to guide their expectations.
- Tactical investors: Those aiming to capitalise on a specific economic shift or market trend that a new thematic NFO is specifically designed to capture
Alternatives to NFOs
If you are unsure if is it good to invest in NFO mutual funds, you can look at established options such as:
- Systematic investment plans (SIPs): Rather than committing a lump sum to a new offer, starting a SIP in a proven diversified equity fund allows for rupee cost averaging and reduces the risk of entering the market at a peak valuation.
- Index funds: For those unsure about selecting a new active manager, index funds offer a low-cost alternative that simply replicates the performance of a market benchmark without the uncertainty of a new active strategy.
- Blue-chip funds: Investing in large, established companies through existing funds offers more stability than testing a new and unknown scheme.
- Diversified equity funds: Established multi-cap or flexi-cap funds offer exposure to a broad range of sectors and companies, reducing the concentration risk often associated with the specific thematic nature of many new fund offers.
Conclusion
Deciding whether is it good to invest in NFO mutual funds depends on your risk appetite and financial goals. While NFOs provide access to unique themes and potential early growth, they lack historical performance data. Investors must carefully weigh these opportunities against risks like liquidity constraints or consider established funds that offer proven track records for more stability.
FAQ‘s
It depends on the specific offer. NFOs can be beneficial for accessing unique themes or closed-ended strategies, but they carry higher risks due to the lack of a proven performance history.
The main disadvantage is the absence of historical data, making it impossible to determine past performance. Additionally, funds often have initial liquidity restrictions and may carry higher marketing expenses.
NFOs are new launches offered at a fixed price without past data. In contrast, existing funds have established portfolios and track records, allowing investors to analyse consistency and risk before buying.
Generally, beginners should prioritise established funds. Since NFOs lack track records, it is safer for new investors to choose existing schemes with proven performance data to ensure more predictable outcomes.
Not necessarily. While some unique thematic NFOs might capture early market trends, many do not outperform established funds because they are untested and often face timing risks during market peaks.
Yes, they are typically considered riskier because they lack a performance history. Unlike existing funds, investors cannot verify how the scheme navigates market volatility or downturns before committing their capital.
You should verify the reputation of the fund house, the experience of the fund manager, the scheme’s investment objective, associated costs, and whether the theme offers something truly unique.
