NFOs in India: Should You Invest in New Mutual Fund Schemes?
Every few weeks, a new mutual fund scheme pops up in India with flashy ads promising higher returns than existing funds. These are called New Fund Offers, or NFOs. They feel like a chance to get in early - like buying stock before a company goes public. But here’s the truth: NFOs aren’t automatically better just because they’re new. In fact, most investors lose money chasing them.
What Exactly Is an NFO?
An NFO is when a mutual fund house launches a brand-new scheme and opens it for subscription for the first time. You can buy units at ₹10 each, no matter what the fund’s actual value will be later. That ₹10 price tag makes it look cheap. But price doesn’t equal value. A ₹10 unit of a new fund isn’t cheaper than a ₹15 unit of an established fund - it’s just priced differently.
Think of it like buying a new car. A brand-new model might have fancy features, but you don’t know how it’ll perform after 10,000 km. An older model has a track record - repairs, fuel efficiency, resale value. Same with mutual funds.
Why Do Fund Houses Push NFOs?
It’s simple: they make money from NFOs. Asset Management Companies (AMCs) charge an entry load (though now mostly hidden in expense ratios) and higher marketing fees during the launch. They want you to invest early so they can start earning management fees. Once the NFO closes, they switch focus to the next one.
There’s no regulatory advantage to NFOs. The SEBI rules are the same for old and new funds. But AMCs spend crores on TV ads, influencer campaigns, and WhatsApp groups to make you believe NFOs are special. Don’t fall for it.
The Myth of the ₹10 Price
Here’s the biggest trick: the ₹10 price. It makes you think you’re getting a bargain. But here’s what really matters - the fund’s strategy, the fund manager’s experience, and its historical performance (even if it’s just 6 months old).
Let’s say Fund A is an NFO with ₹10 units. Fund B is an existing equity fund trading at ₹25. If Fund A grows 15% in a year, your ₹10 becomes ₹11.50. If Fund B also grows 15%, your ₹25 becomes ₹28.75. You didn’t gain anything by buying the cheaper unit. You just paid the same percentage.
Units are not like stocks. You’re not buying ownership - you’re buying a slice of a portfolio. The number of units doesn’t matter. What matters is how well the portfolio performs.
When Do NFOs Actually Make Sense?
There are only two real cases where an NFO might be worth considering:
- You need a specific exposure - like a new sector fund (e.g., AI infrastructure, clean energy) that doesn’t exist in any existing fund. If you’re confident in the theme and the AMC has a strong track record, an NFO could fill a gap.
- The fund manager is proven - if the same team behind a top-performing fund launches a new scheme with a similar strategy, there’s a higher chance of success. Example: Parag Parikh Flexi Cap’s new thematic fund in 2024 - it leveraged the same team that delivered 22% CAGR over 5 years.
Everything else? Avoid it.
What to Look at Instead
Instead of chasing NFOs, look at these:
- 3-5 year returns - Compare funds like HDFC Equity, ICICI Prudential Bluechip, or Axis Growth Strategy. Look at consistency, not peak returns.
- Expense ratio - A fund charging 1.8% eats into your returns more than a 1.2% fund over time. Even 0.5% difference adds up.
- Portfolio turnover - High turnover means more trading costs. Look for funds with turnover under 50% annually.
- Assets under management (AUM) - Funds with over ₹5,000 crore are usually more stable. Too small, and they might shut down. Too big, and they struggle to beat the index.
Use platforms like Value Research or Morningstar India to compare. Don’t rely on your broker’s WhatsApp group.
The Hidden Costs of NFOs
NFOs aren’t free. Here’s what you pay:
- Higher expense ratio - New funds often have higher fees in the first year to cover launch costs.
- Lock-in periods - Some NFOs, especially tax-saving ones, lock your money for 3 years.
- Delayed performance data - You can’t compare returns, risk, or volatility until the fund is 12-18 months old.
- Opportunity cost - While you wait for the NFO to mature, your money sits idle or earns less in a low-yield liquid fund.
One investor I spoke to in Bangalore invested ₹2 lakh in an NFO in early 2024. It’s now 14 months old. The fund is still down 3% from its NAV. Meanwhile, the existing flexi-cap fund he ignored is up 17%.
Real-World Example: The 2024 NFO Surge
In 2024, over 60 new equity NFOs launched in India. By mid-2025, only 12 had outperformed their benchmark. The rest lagged behind the Nifty 50 or Sensex. The top performers? None were flashy new themes. They were funds with experienced managers, low fees, and clear investment rules.
One NFO, ‘India Next 50 Alpha’, promised to track mid-cap stocks. It launched in March 2024. By December 2025, it underperformed the Nifty Midcap 150 Index by 4.7% annually. Why? High portfolio churn and poor stock selection.
Another, ‘Green Energy Opportunities’, had a great idea - solar, wind, EVs. But its portfolio was filled with small, illiquid stocks. It couldn’t scale. The fund shut down in January 2026.
What Should You Do?
Here’s your action plan:
- Ignore the hype - If you see an ad saying “Limited time! First 10,000 investors get bonus units!” - walk away.
- Check if you already have exposure - Do you own a diversified equity fund? You probably already hold what the NFO offers.
- Wait 6 months - If you’re still interested after the NFO closes, wait. See how it performs. Look at monthly returns, volatility, and portfolio changes.
- Ask: Why not an existing fund? - If the NFO’s strategy is sound, there’s likely a fund with 3+ years of history doing the same thing. Choose that one.
Most investors don’t need new funds. They need better discipline. Stick with 3-4 proven funds. Rebalance once a year. Ignore the noise.
Final Thought
New doesn’t mean better. In mutual funds, experience beats novelty every time. The best returns don’t come from being first - they come from staying consistent.
If you’re new to investing, start with a simple index fund like the UTI Nifty 50 Index Fund. It’s low cost, transparent, and has tracked India’s market for over a decade. You don’t need to chase the next big thing. You just need to stay in the game.
Are NFOs riskier than existing mutual funds?
Yes, NFOs are riskier because they have no track record. You don’t know how the fund manager handles market stress, how the portfolio behaves in downturns, or whether the strategy actually works. Existing funds have 3-10 years of data you can analyze. That’s invaluable.
Can I invest in NFOs through SIP?
No. NFOs are one-time subscription windows, usually lasting 7-30 days. After that, you can only buy units at the prevailing NAV - not through SIP. Some funds convert to open-ended schemes after the NFO, but you’ll have to set up a new SIP manually.
Do NFOs have lower expense ratios?
Not usually. Many NFOs start with higher expense ratios to cover marketing and launch costs. Over time, they may reduce fees, but many don’t. Always compare the current expense ratio of the NFO with similar existing funds before investing.
Should I invest in NFOs for tax savings?
Only if you haven’t used your ₹1.5 lakh limit under Section 80C. But even then, choose a fund with a proven track record. ELSS funds with 5+ years of performance are safer than new ones. Many new ELSS NFOs have shut down or underperformed due to poor stock selection.
What’s the difference between an NFO and a closed-ended fund?
An NFO is the initial offering period for any new fund - it can be open-ended or closed-ended. A closed-ended fund, like a fund with a 3-year lock-in, doesn’t allow redemptions during its term. Most NFOs are open-ended, meaning you can buy and sell anytime after the offer period. Always check the fund’s structure before investing.
