Fund raising is an important aspect of financial planning for any company. There are many ways through which a company can raise capital from the market. However, in the case of an Asset Management Company, they can raise the capital through New Fund Offer (NFO). In this article, you will learn all the important details about NFO and its related concept.
Let us begin by learning NFO meaning.
What is NFO?
When an Asset Management Company launches a fund, a New Fund Offer is launched to raise capital in order to purchase securities. The securities include equity and bond. During an NFO, mostly new mutual fund schemes are launched. NFO is similar to IPO expect for the fact that it is launched by an Asset Management Company. The NFO remains open for a specific period of time and the investors can apply for it during the stipulated price. On conclusion of the NFO period, the investors get the funds at the prevailing Net Asset Value (NAV) of the fund.
Many times investors get confused between an NFO and IPO. In this section of the article, we will clear all your doubts regarding the same.
Difference Between NFO and IPO
Since IPO and NFO both aim to raise money, the investors often get confused between the two. A company brings IPO to raise capital for improving its operational efficiency. On the other hand, an Asset Management Company brings NFO for purchasing the stocks of the company, commodities, bonds, etc. The price of the IPO is much higher than its face value. But in the case of NFO, the fund's price is Rs.10 per unit in general.
Let us now learn about the types of NFO.
Types of NFO
A New Fund Offer is of two types;
- Open-Ended Funds
As the name suggests, the investor can enter or exit the open-ended fund at any point in time after its launch. These funds are launched when the NFO ends. When there is a New Fund Offer, the open-ended funds announces the purchase of new units on a specific date. You can purchase any number of units of these funds. The NAV of the open-ended mutual funds is reported regularly after the closure of the stock market.
- Close-Ended Funds
A close-ended fund is one that does not allow you to make an entry or exit after the NFO period is over. They have a fixed maturity period that ranges from 3 to 4 years from the launch date. Theoretically, you can buy or sell these funds in the market, but it is not possible to do so because of lower liquidity.
Let us now learn about the advantages of investing in NFO.
Advantages Of Investing In NFO
- Close-ended funds provide you with the opportunity to invest in new and innovative products that are not available in the case of other funds. The close-ended funds come up with hedging strategies that protect you from the downside in the market by using the put options. However, being a close-ended fund, you can invest only when the NFO period is open.
- The close-ended NFO mutual funds often outperform other investment avenues. This is because when an NFO is launched during the peak of the market and you invest in it, the fund manager has the authority to hold the funds and invest when the markets are favourable or more attractive.
- Since close-ended NFO mutual funds have a lock-in period, the fund managers are not required to sell their stocks out of panic leading to losses to the unitholders. The fund managers in close-ended funds have the time to carry out research for stock selection and accordingly invest in securities.
- The lock-in period of NFO immunes the investors from market panic. With a lock-in period in place, the investors would not fall for bad investment decisions. Therefore, as an investor, you would make higher returns in these funds as you remain in the market for the long term.
Since there are many advantages of investing in the NFO, you must select it carefully. To help you with the NFO selection, we list down certain points that you may follow.
Things to Consider Before Investing in NFO
- You must make a background check of the fund house. You must ensure that the NFO has a positive history of mutual fund investments and has the potential to offer good returns in the long run.
- Before selecting any fund for investing, you must read about the risk, returns, allocation of the asset, etc. of the NFO.
- Always make sure that you read the offer document carefully and understand the fund manager’s investment process.
- The minimum amount for NFO subscription ranges from Rs. 500 to Rs. 5,000. So choose your funds accordingly.
- Some of the NFOs have a lock-in period. So invest in them after considering that factor.
The above mentioned are a few things to consider before investing in New Fund Offer. Investing is all about selecting the right avenues and making good returns in the long run. If you are a beginner in the market or seek any assistance in investing, you can contact IndiaNivesh. We understand your financial needs & goals and accordingly suggest the right investment option for you.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
Mutual funds can make an excellent addition to your investment portfolio. However, if the mutual fund is yielding less returns than what you anticipated, you might get tempted to sell off your mutual fund units and invest the funds in other better yielding investment avenues. If you decide to make an exit from your mutual fund investment, you may do so by redeeming the units you hold. Selling mutual funds is known as mutual fund redemption. However, when you decide to sell mutual funds, you must access all the pros and cons and get a good understanding of when to sell mutual funds and how to sell mutual funds. Besides, mutual fund selling techniques play a crucial role in selling mutual funds. This article helps you in understanding various aspects of how to sell mutual funds and its related concepts. There are four steps for selling mutual funds, let us learn the steps in detail. How to Sell Mutual Funds Contact the Mutual Fund Company or Financial Advisor If you have purchased the mutual funds from the mutual fund company directly, you must contact them directly. On the other hand, if the purchase is made with the assistance of a financial advisor, you can contact the advisor or his company. Check the Fees or Charges of Selling Mutual Funds Before selling your mutual fund units, check the fees or charges that are applicable. The charges on selling mutual funds depend on the period of your holding, the company with whom you are dealing and the size of the sale. For example, if the purchase of mutual fund units is made with a deferred sales charge, you will have to pay a sales charge on it. The companies selling the mutual fund units with deferred sales charges often allow the holders to sell up to 10% of units without any charge. Decide the Number of Units to Sell For selling the specific number of units of mutual funds, you have to submit a signed form to the respective authority. The confirmation letter signed by you ensures that no one else can sell more or less number of units than specified. The selling price of the mutual fund units is NAV of your fund. Instruct About the Money Received on Selling Units When you sell your mutual fund units through the company or advisor, you can give them instructions regarding what to do with the money. You can ask for a cheque or instruct them to deposit the money into your bank account. You can even use the money to purchase other mutual fund units or investment. The above mentioned is the process of selling a mutual fund. Along with how to sell mutual funds, you must know when to sell mutual funds. In this section of the article, you will learn about the right time to sell a mutual fund. When to Sell Mutual Funds Change in Fund Manager The expertise and experience of the fund manager is the first and foremost thing to consider before investing in any mutual fund. Fund managers help in generating wealth. But when a mutual fund company changes its fund manager for any reason, it’s the time to get cautious. It becomes important to check the expertise and knowledge of the new fund manager. If he does not fulfil your criteria, it is probably the time to sell your mutual fund units. Change in Strategy You invest in any mutual fund after determining your financial goals. When mutual fund’s strategy meets your financial goals, you feel more confident and comfortable about your investments. But when the mutual fund company starts changing its investment strategy and that is against your approach, you may think of exiting such mutual fund. Underperformance When the mutual fund is not giving the returns you expect out of it even after holding it for the long term, it is probably the time to exit. The best way to know the performance of your fund is by comparing it with other similar funds. If your fund is underperforming, it is not a good sign. Rebalancing If you have a set asset model and you rebalance it at the end of each year, you may need to sell your mutual fund units. You may also think of selling the mutual fund units when your investment goals change and there is a need for rebalancing. Like for example, if you were following a growth strategy and now want to change it to a strategy that provides a steady income, in that case, you may have to sell your mutual fund units to fit in the new strategy. Conclusion The above mentioned are a few of the situations when you may think of selling a mutual fund. However, selling mutual funds should not be an impulsive decision. It is imperative to think wisely and act smartly. Always remember that initially when you decided to invest in mutual funds, you had a positive outlook and that is why you decided to invest. Hence, make sure that your reason to exit is clear. It is ideal to carefully analyse all the pros and cons of your fund's performance and then decide when to sell mutual funds and how to sell mutual funds. Once you gain confidence in your decision, don’t hold back. If you need any assistance regarding investing in mutual funds or any other asset class, you may seek the expert advice of IndiaNivesh. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
The commodity market in India has seen a sharp increase in the volumes over the past few years. Commodities are just another asset class like the bond and equity market. Commodities come from the earth and act as raw material for all types of manufacturing businesses. There are many types of commodities that can be traded in the market. In this article, you will learn about commodity trading in India, types of commodity market and other aspects of the commodity market in India. Let us begin by understanding the meaning of commodity. Meaning of Commodity A commodity is a group of goods or assets that are used in our day to day lives such as metals, agriculture, energy, etc. A commodity can be categorised as movable good that can be purchased and sold, except for money and actionable claims. There are various types of commodities that are traded in India. Let us look at the types of commodities. Types of Commodities Traded In India Agriculture: Wheat, Cotton, Rice, Corn, etc. Metals: Copper, Zinc, Gold, Silver, etc. Energy: Natural Gas, Crude Oil, Heating Oil, etc. Meat and Livestock: Cattle, Egg, etc. Let us now learn how you can invest in the commodity market in India. How to Invest in Commodity Market in India? You can commence commodity trading in India in any of the six major commodity trading exchanges as listed below; Indian Commodity Exchange – ICEX Ace Derivatives Exchange – ACE National Multi Commodity Exchange – NMCE The Universal Commodity Exchange – UCX Multi Commodity Exchange – MCX National Commodity and Derivatives Exchange – NCDEX From the above MCX and NCDEX are the most popular exchanges. List of Commodities Traded on Multi Commodity Exchange (MCX) Metals: Aluminium, Brass, Copper, Zinc, Lead, Nickel. Bullion: Gold, Silver. Agri Commodities: Rubber, Black Pepper, Mentha Oil, Crude Palm Oil, Palmolien, Cardamom, Cotton, Castor Seed. Energy: Natural Gas, Crude Oil. List of Commodities Traded on National Commodity and Derivatives Exchange (NCDEX) Fibres: Cotton, Guar Gum, Guar Seed, Kappa’s Oil and Oilseeds: Crude Palm Oil, Cotton Seed Oil Cake, Castor Seed, Mustard Seed, Refined Soy Oil, Soybean Soft: Sugar Cereals and pulses: Wheat, Barley, Paddy, Chana, Maize Rabi, Maize Kharif / South Spices: Jeera, Turmeric, Coriander, Pepper. Let us now learn about the commodities that are most traded. Most Traded Commodities Natural gas, crude oil, gold, silver, cotton, corn, wheat are among the most traded commodities globally. Crude oil and gold are among the most favourite commodities among the traders and investors community. Crude oil is used for producing diesel, petroleum, etc. It is very volatile during global tensions. OPEC is the consortium of oil-producing nations that determine the supply of crude oil. The main oil-producing nations are Russia, US, Saudi Arabia, etc. Just like crude, gold is among the most popular commodity Indian people invest in. The price of gold has an inverse relationship with the US dollar. When the price of the US dollar falls, the prices of gold increase and when the price of the US dollar increases, the prices of gold falls. Let us now learn about the participants in the commodity market. Participants of Commodity Market Speculators Speculators are traders that constantly monitor the price of commodities and predict the future price movement. If the speculators expect the prices of the commodity to move higher, they purchase commodity contract and sell them when the price goes up. Similarly, when they expect the price to go low, they sell commodity contracts and purchase back when the price falls. Thus, the intention of speculators is to make a profit in any type of market. Hedgers Hedgers are the producers, manufacturers, etc. who safeguard their risk by using the commodity futures market. Like for example, if a cotton farmer expects price fluctuation during crop harvesting, he can hedge his position. To hedge the risk, the farmer enters into a futures contract. If the price of the crop falls in the local market, the farmer can compensate for the loss by making profits in the future market. Similarly, if there is an increase in the price during crop harvesting, the farmer can book loss in the futures market and compensate it by selling his crop at a higher price in the local market. Let us now learn about the benefits of trading in the commodity market. Benefits of Trading in the Commodity Market Management of Risk The Securities and Exchange Board of India (SEBI) ensures that the exchanges have proper risk management procedures in place to protect the investors. Therefore, trading in commodities is regarded as very safe. Transparency Trading on the commodity exchanges is very transparent and the buyers or sellers cannot manipulate the price. The price discovery is done without any manipulation and orders are executed only when there is a match between a buyer’s and seller’s order. The margins in commodity markets are low, therefore traders use this market to hedge their position and for higher leverage. There are many benefits of trading in the commodity market. However, there are some important things that you must know while trading in such a market. Things to Know While Trading in Commodity Market The demand and supply chain determines the prices of commodity and you must have a clear idea about it. The prices of commodities depend on various factors and your strategies must be framed after understanding those factors. As a beginner, it is always advisable to take the help of experts before starting commodity trading. The risk in commodity trading is higher because you get higher leverage. The above mentioned are a few things that one must know before indulging in commodity trading in India. As a beginner or seasoned investor, you can contact IndiaNivesh for any assistance relating to the Indian commodity market. Our experts and professionals can help you in finding the best commodity to trade in India according to your risk-taking ability and financial goals. Our aim is to exceed the client’s expectation in all endeavours and we will be glad to serve you. Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.
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