In recent times, marketing gimmicks, misselling products and fancied nomenclature in the mutual funds' initial offerings have taken the gullible investors for a ride. Let's be careful of some of the bare facts involving NFOs.

Markets are bullish…FIIs are investing…GDP is growing at 9%..., these are some headlines we are coming across everyday in the newspapers. With so much positivity around, one sometimes suspects, "Is there something wrong?" Both the primary market for Initial Public Offerings (IPOs) and the secondary markets for stocks have been performing well. To cash-in on the bullish sentiments, we have seen an increased number of IPOs (very recent being that of DLF Ltd., raising Rs. 9,625 cr) and Follow-on Public Offers (FPOs) being launched by companies. In addition, the Mutual Fund industry is also seen in the situation where Mutual Fund houses are launching new schemes backed by aggressive marketing efforts to attract many investors. Some of these schemes are mere replication of earlier schemes with different names but similar objectives. Whereas, there are also some innovative schemes with varied objectives which aim at providing better investor returns.

This article is intended to inform the readers about the facts and myths associated with New Fund Offerings (NFOs as they are popularly known) and how investors can make sure that they are not fooled into buying something that they might already own. New Fund Offerings (NFOs), for some time now have been a defining feature in the domestic mutual fund industry. It is the first issue of units of a mutual fund scheme to investors. It is similar to an IPO where the company makes the first issue of its security to the public. Also in order to make their NFO successful, most mutual funds offer attractive commissions on the sale of units done by distributors and sub-distributors. As a result, these intermediaries aggressively promote the NFOs and at times even mislead investors by convincing them of the cheaper purchase price. All these factors triggered Sebi to issue guidelines leading to a clear demarcation between the two.

Portfolio Organizer Magazine, New Fund Offerings, NFOs, Mutual Funds Industry, Initial Public Offerings, IPOs, Foreign Institutional Investors, FIIs, Gross Domestic Products, GDP, Decision-Making Process, Asset Management Company, Mutual Funds, Securities and Exchange Board of India, SEBI.