A shorter NFO period should not affect your investment decision. The good part:Your money will not be blocked for long, and you can monitor the fund's performance from the very outset

In March, the Securities and Exchange Board of India (Sebi) announced a series of steps to make mutual funds more investor friendly. One of the changes made was cutting down the new fund offer (NFO) period. NFOs launched by mutual fund houses for openand close-ended schemes will be available for initial subscription for 15 days starting July 1 as against currently allowed 30 and 45 days period, respectively.

The first impact is already being seen. Fund houses have launched their schemes before the due date so that the NFO can be kept open for the presently allowed time span. There are some other impacts, which will be seen once the change becomes effective.

The number of new offers hitting the market are quite high as asset management companies (AMCs) are trying to launch new schemes before July 1. The important point is that these funds will be open after July 1 also. Investors shouldnt be rushing into investing in these funds because of the sudden surge in choices available. Investors should decide, based on their need as to why they need to add a particular new fund to their portfolio.

INVESTMENT DECISION

The main issue here is the lower time period for which the new offers will remain available for subscription. But, it should not matter to an investor whether an NFO is open for 30 days or 15 days. The NFOperiod should not play a part in your investment decision.

It has also been observed that there is more hurry among investors to buy a fund in the last few days before the NFOperiod gets over. This means that the reduction in offer time period does not impact the manner of investment or an investor's decision.

In fact, initial public offerings (IPOs) of stocks are open for very few days in comparison (for a minimum of three days and not more than ten working days), but investors are able to complete the process of investment well in time, even when the issue size is large.

Hence, the investment can be made as per the requirement of an investor, who would have to ensure some advance preparation in the form of readily available cash and other details.

BLOCKING THE MONEY

What will really prove beneficial to the investor is the fact that his or her money will not be locked for a longer period in comparison to today. This is so because a shorter offer period will mean schemes will be available for subscription sooner. The investor will also be able to see how the fund has performed sooner as the value will be available at an earlier date. Even though it seems like a benefit in monetary terms, this would not translate into higher returns.

Unlike a stocks IPO, where the investor is interested in getting the benefit of the price appreciation on listing, the mutual fund (MF) space does not witness any such situation. While the stock price depends upon the demand and supply, an MFs net asset value (NAV) shows the underlying investments, which cannot be expected to rise sharply in a short period. The market regulator has also asked MFs to ensure there is no investment of funds till the offer period ends.

PROCEDURE

The faster time period for the turnover also means there will be a quicker procedure and system ready for the investment. The extension of the Application Supported by Block Amount (Asba) to MFs will improve the situation for the investors. Apart from features like the ability to make investment online that are already visible, there are a lot more improvements that will be present for the investors in terms of completing the process. The ease of procedure will also help in building the confidence of investors.

Source: Business Standard