Why Should Investors Stay Away from New Fund Offers (NFOs) in 2025? – Insights by Riddhi Siddhi Share Brokers
The year 2024 witnessed the launch of over 200 New Fund Offers (NFOs), with a significant surge in September and October. While the idea of investing in an NFO might seem tempting, especially given its initial Net Asset Value (NAV) of ₹10, financial experts advise caution. At Riddhi Siddhi Share Brokers, we aim to empower our clients with insights that lead to informed investment decisions. Here’s why avoiding NFOs might be a smarter move in 2025.
1. Lack of Performance History
NFOs lack a proven track record, making it challenging for investors to evaluate their potential. Established mutual funds, which have weathered market cycles and adhered to consistent strategies, offer a more reliable option. As financial advisors often say, “Past performance is not a guarantee, but it’s a guiding light.”
Expert Take:
“Investing in NFOs can be risky since they lack historical data to assess their performance or strategy consistency.” – Alekh Yadav, Head of Investment Products, Sanctum Wealth.
2. Sectoral Trends May Be Short-Lived
Many fund houses launch NFOs tied to trending sectors or themes like IT, logistics, or energy, often when these trends are nearing their peak. Investing at this stage could result in suboptimal returns.
Expert Insight:
“An NFO launched at the tail end of a sector’s growth cycle may not perform well in the long run. Timing is critical.” – Soumya Sarkar, Co-Founder, Wealth Redefine.
3. Misconceptions About NAV
A common myth among investors is that buying an NFO at ₹10 is akin to purchasing a stock at its IPO price. However, NAV alone does not determine a fund’s success. It’s the fund’s return on investment that truly matters.
Case in Point:
- A fund with an NAV of ₹20 growing to ₹24 yields a 20% return.
- A fund with an NAV of ₹10 growing to ₹11 delivers only a 10% return.
When Might NFOs Be Worth Considering?
While the general advice is to stay cautious, NFOs targeting emerging trends—such as digitalisation or healthcare innovations—may offer unique opportunities. However, even in such cases, it is vital to assess the fund management team’s expertise and track record in similar categories.
The Right Approach to Mutual Fund Investing
At Riddhi Siddhi Share Brokers, we recommend a structured approach:
- Evaluate Existing Funds: Look for funds with a consistent performance history.
- Avoid Impulse Decisions: Give NFOs 6–12 months to prove their strategy and performance.
- Align With Financial Goals: Ensure your investment aligns with your long-term objectives.
Partner With Riddhi Siddhi Share Brokers
As a trusted name in the share broking and investment space, Riddhi Siddhi Share Brokers provides tailored guidance to help you navigate the complexities of mutual fund investments. Connect with us today to ensure your financial journey is both informed and rewarding.
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