NFO boom in 2026: What investors should know before subscribing

India’s mutual fund industry is seeing a steady stream of New Fund Offers (NFOs), with fund houses introducing schemes across categories to attract investors. According to Value Research data, 27 NFOs were launched in October, compared with 24 in September, while five schemes have been launched in November so far.

Speaking to The Federal, Harsh Vira, founder and CEO of FinPro Wealth, explains what investors should evaluate before investing in an NFO, whether the Rs 10 initial Net Asset Value (NAV) offers any real advantage, and how to avoid duplicating existing investments.

Edited excerpts:

What is driving fund houses to launch new schemes?

Most of the NFOs launched in the past one to two years are different from the existing ones, and fund houses are launching new schemes to meet investor demand.

Today, investors want to move beyond traditional investment products and explore mutual funds. Although the industry already has more than 1,000 schemes, most of them belong to traditional categories such as small-cap, mid-cap and large-cap funds.

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Investors are now looking to invest in thematic funds. That is why many new fund houses are launching NFOs with different themes and strategies compared with their existing offerings.

Does an NFO priced at Rs 10 offer any advantage over an existing mutual fund?

Theoretically, for an investor looking at returns, the price does not matter.

For example, if I invest in a fund where the NAV per unit is Rs 10 and it increases by 10 per cent, the NAV will become Rs 11. Similarly, if I invest in a fund where the NAV per unit is Rs 1,000 and it increases by 10 per cent, the NAV will become Rs 1,100.

In both cases, the percentage return remains the same. It makes no difference whether the unit NAV is Rs 10, Rs 50 or Rs 100.

Investors should actually look at the fund's portfolio allocation rather than its unit price.

How can investors distinguish a genuinely useful new fund from one that duplicates their existing portfolios?

As an investor, I would look at the strategy and what the fund offers in terms of portfolio allocation.

If you look at India today, there are more than 40 large-cap funds. Across these funds, almost 40 per cent to 50 per cent of their allocations are in similar stocks.

For instance, if I already have two large-cap funds in my portfolio and a new AMC launches another similar large-cap NFO, I should avoid investing in it because it could duplicate my existing portfolio.

I should invest only in NFOs that offer a different theme. For example, if I do not have any allocation in silver and a silver ETF is launched, I can consider it. Similarly, if I do not have an allocation in gold and a new gold fund is introduced, I can consider that.

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If I do not have exposure to a service sector fund and a new service sector NFO comes into the market, I can also consider investing in it. Otherwise, I should avoid funds that replicate my existing investments.

What should investors examine in a new fund's strategy, benchmark, expense ratio and risk profile before investing?

Before investing in any mutual fund, whether it is an existing scheme or an NFO, investors should always check the benchmark index and expense ratio.

They should also check whether the fund offers diversification from their existing portfolio or whether it is likely to be another similar investment. These parameters are very important.

The expense ratio should be within the prescribed limits. However, if a fund offers a strategy similar to existing funds, I would prefer the one with a lower expense ratio.

At the same time, investors should look at the Riskometer. SEBI has prescribed the Riskometer for mutual fund schemes, including new fund offers. If the Riskometer indicates that a fund carries high or very high risk and I am a conservative investor who does not have a high risk appetite, I should avoid investing in that NFO.

Since new fund offers do not have a performance track record, what else can investors look at before investing?

Honestly, I generally do not look at NFOs as a major investment option for my portfolio. I do not believe that a larger allocation of my portfolio should go into NFOs.

Because the fund is new. I am not saying that the fund will be good or bad. That will depend on its performance over the next few years.

But if I genuinely want to invest Rs 1 crore, Rs 2 crore or any other large amount, I would prefer funds that already have a proven track record.

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For example, if a mutual fund has a 20-year history of outperforming the market and its benchmark index, comparing that fund with a new NFO is not the right approach.

Honestly, I feel retail investors are often attracted to NFOs because they believe they are getting units at just Rs 10 NAV. But that does not make sense because the fund has no past performance record, and investors do not know how it will perform in the future.

They should allocate a larger portion of their capital to funds that already have a good track record over the past few years.

Should investors subscribe during the NFO period or wait until the fund establishes a track record?

If you ask me as an expert, I would always say that investors should not directly jump into NFOs just because the unit NAV is Rs 10. They should wait until the fund establishes a good track record.

They should check whether the fund becomes one of the top-performing funds in the future and whether it follows a different strategy from other available funds.

Investors should also check whether the fund is able to beat its benchmark returns. If you look at the industry, almost 50 per cent of funds fail to beat their benchmark index returns.

If you invest in an NFO simply by looking at its NAV price, you might regret that decision after two or four years if the fund does not perform well and you lose out on returns.

Instead, investing in an established fund with a proven track record of three, four, five or even 10 years would make more sense for an investor.

How much of a portfolio, if any, should investors allocate to NFOs?

I think there is no universal rule for allocating a specific portion of a portfolio to NFOs because new offers keep entering the market almost every day. Therefore, investors cannot allocate a fixed percentage of their portfolio to NFOs.

However, let us say I am an investor with an active income and want to allocate a portion of that income to NFOs. I would generally look at funds that offer a different strategy from my existing portfolio.

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For example, if I already have large-cap, mid-cap and small-cap funds in my portfolio, I might avoid another NFO in the same categories.

But if a service sector fund or a capital market fund is launched and I believe that the theme could perform well over the next four to five years, I can consider allocating 5 per cent to 10 per cent of my portfolio to NFOs. I would not invest a larger amount.

What are the biggest mistakes retail investors should avoid when investing in NFOs?

As retail investors, people tend to look only at the price and not the value. That is the biggest mistake.

Most retail investors who invest in NFOs do not know much about the fund manager. In many cases, the fund is new and does not have any past performance record. Yet, investors still put their money into it simply because the unit NAV is Rs 10.

One of the biggest lessons I have learnt during my nearly 12 years in the stock market and wealth management industry is that retail investors are very price-sensitive when it comes to investments.

If we look at stocks, investors tend to buy shares priced at Rs 20 and avoid companies whose shares are priced at Rs 2,000. They do not understand enough about the company. They simply assume that a Rs 20 stock is cheap and a Rs 2,000 stock is expensive.

But fundamentally, investors should ask why a particular share is trading at Rs 2,000. It could be because the company is doing well. Similarly, another company's share may be trading at just Rs 20 because the company may not be performing as well.

Retail investors make the same mistake when investing in NFOs by looking only at the Rs 10 unit NAV. They should avoid making investment decisions based solely on the price.

With NFOs continuing to enter the market, investors must look beyond the Rs 10 entry price and focus on the fund's strategy, suitability and risk. Ultimately, a new fund is worth considering only if it serves a clear purpose in an investor's portfolio.