Are NFOs riskier than existing mutual funds?

Yes, generally. NFOs lack track records, have untested strategies, and face market timing risks. Existing funds with proven performance across market cycles are typically safer. SEBI's 2025 rules have improved NFO protections, but the fundamental risk of investing in an unproven fund remains.

Is Rs 10 NAV in NFOs cheaper than higher NAV in existing funds?

No. This is a common myth. NAV is just a unit price, not a measure of value. A fund at Rs 10 NAV growing 20% gives the same return as a fund at Rs 150 NAV growing 20%. Focus on expected returns, not NAV.

Can NRIs invest in NFOs in India?

Yes. NRIs can invest in NFOs through NRE or NRO accounts, just like existing mutual funds. The process, KYC requirements, and taxation are identical. However, NRIs from the US and Canada may face restrictions due to FATCA compliance.

When should I consider investing in an NFO?

Consider an NFO only if it offers a genuinely unique strategy not available in existing funds, is managed by a proven fund manager, comes from a reputable AMC, and fits your asset allocation. Even then, consider waiting 12-18 months to see actual performance.

How long should I wait before investing in a new fund?

We recommend waiting at least 12-18 months. This allows the fund to build its portfolio, generate performance data, and prove itself across at least one market cycle. A 3-year track record is even better for evaluation.

NFO vs Existing Funds: Which is Safer for NRI Investors?

Last month, an NRI in our Belong WhatsApp community asked a question that comes up often: "A new thematic NFO just launched at Rs 10. Should I invest now before the NAV goes up?"

The question makes sense on the surface. Rs 10 sounds cheaper than Rs 150. More units for the same money. Better returns, right?

Wrong.

This is one of the biggest myths in mutual fund investing. And it costs investors real money every year.

At Belong, we have helped many NRIs navigate these decisions. We have seen the confusion firsthand. NFOs come with flashy marketing. Fund houses promote them heavily. Financial advisors get higher commissions on NFO sales. Everyone seems excited.

But excitement is not an investment strategy.

In this guide, we will break down NFOs vs existing funds from an NRI investor's perspective. No marketing fluff. Just facts, numbers, and practical advice to help you make smarter decisions.

What is an NFO (New Fund Offer)?

An NFO is the first public offering of a new mutual fund scheme. Think of it like an IPO for mutual funds.

When an Asset Management Company (AMC) wants to launch a new fund, it opens subscriptions for a limited period, usually 15 to 30 days. During this window, investors can buy units at a fixed price, typically Rs 10 per unit.

According to AMFI data, India saw 245 NFOs collect Rs 1.09 lakh crore in FY2025 alone, a 63.5% jump from the previous year. Clearly, NFOs are popular.

But popularity does not mean suitability.

NFOs come in two types:

Open-ended NFOs: After the subscription period closes, you can buy or sell units anytime at the prevailing NAV. Most NFOs fall into this category.

Closed-ended NFOs: These have a fixed maturity period. You cannot redeem before maturity unless the fund is listed on a stock exchange. Liquidity is limited.

👉 Tip: For NRIs, liquidity matters. Stick to open-ended funds unless you have a specific long-term strategy. Closed-ended funds lock your money, and getting out early can be expensive.

The Rs 10 NAV Myth: Why NFOs Are Not "Cheaper"

This misconception has cost investors crores. Let us bust it once and for all.

Many investors believe that buying at Rs 10 per unit gives them an advantage over buying an existing fund at, say, Rs 150 per unit. The logic seems simple. More units. More profits.

Here is why that logic fails:

Example 1: You invest Rs 10,000 in an NFO at Rs 10 NAV. You get 1,000 units. The fund grows 20% in one year. NAV becomes Rs 12. Your investment value: Rs 12,000 (1,000 x Rs 12).

Example 2: You invest Rs 10,000 in an existing fund at Rs 150 NAV. You get 66.67 units. The fund also grows 20% in one year. NAV becomes Rs 180. Your investment value: Rs 12,000 (66.67 x Rs 180).

Same return. The NAV at purchase does not matter. What matters is how much the fund grows after you invest.

The Rs 10 NAV in an NFO is just an arbitrary starting point set by the AMC. It has zero relation to whether the fund is "cheap" or "expensive." AMFI's investor education portal confirms this clearly.

👉 Tip: Never choose a fund based on its NAV. Focus on the fund's strategy, the fund manager's track record, and whether it fits your goals.

Why Track Record Matters More Than You Think

Here is the fundamental difference between NFOs and existing funds:

Existing funds have a history. NFOs do not.

With an existing fund, you can see:

How it performed during market crashes (like 2020 or 2022). How consistent the returns have been over 3, 5, and 10 years. How the fund manager handled volatility. What stocks or bonds the fund actually holds. How the fund compares to its benchmark and peers.

With an NFO, you get:

A scheme information document (SID) describing what the fund manager plans to do. No actual performance data. No proof that the strategy works. No history of how the manager navigates tough markets.

According to ICICI Direct's research, existing mutual funds provide historical data on returns and volatility, offering a clearer picture of their performance across different market cycles. NFOs lack this entirely.

For NRIs managing investments from thousands of kilometers away, this track record is crucial. You cannot monitor your portfolio daily. You need funds that have proven themselves over time.

Real Data: How Do NFOs Actually Perform?

Let us look at some numbers.

In 2024 and 2025, several NFOs launched with great fanfare. Some performed well. Many did not.

According to Stockgro's analysis, in 2025, only 7 new funds out of 189 launches exceeded 20% returns. That is roughly 3.7% of NFOs.

Compare this to existing funds. Among established large-cap and flexi-cap funds with 5+ year track records, the percentage of funds delivering competitive returns is significantly higher.

Why the difference?

NFOs face several challenges:

Portfolio is not fully built: When you invest in an NFO, the fund manager has not yet purchased all the stocks or bonds. Your money sits idle initially while the portfolio is constructed.

Market timing risk: If the market corrects right after the NFO closes, the new fund takes a hit before it even starts properly.

No tested strategy: The investment theme might sound exciting on paper but may not work in real markets.

Higher initial expenses: NFOs spend heavily on marketing and distribution. These costs get passed on to investors.

👉 Tip: If an NFO's strategy interests you, consider waiting 1-2 years after launch. Let the fund establish a track record. Then evaluate if it is worth investing.

SEBI's 2025 Rules: Better Protection for NFO Investors

Good news for investors. SEBI introduced important changes in 2025 that make NFOs safer.

30-Day Deployment Rule: Earlier, AMCs had 60 days to deploy money collected from NFOs. Your capital would sit idle for two months.

Now, SEBI has cut this to 30 days. According to SEBI regulations, if the AMC does not deploy your money within 30 days, you can withdraw without any exit load or penalty.

This is particularly helpful for NRIs. Your money starts working faster, and you have a clear exit option if the fund delays deployment.

Mandatory Stress Testing: SEBI now requires mutual fund schemes to undergo regular stress tests. Results are made public. You can see how a fund might perform under extreme market conditions.

Skin in the Game: Fund managers and AMC employees must now invest part of their own compensation in the funds they manage. When the manager's money is at stake, they tend to be more careful.

These regulations apply to both NFOs and existing funds, but they particularly help investors evaluating new schemes with no track record.

When Does Investing in an NFO Make Sense?

Not all NFOs are bad. Some genuinely offer something new. Here is when an NFO might be worth considering:

1. Truly Unique Strategy: If the NFO offers a strategy that no existing fund provides, it might fill a gap in your portfolio.

Example: A fund focused on a new sector (like space technology or green hydrogen) where no established fund exists.

2. Proven Fund Manager: If the fund manager has an excellent track record with other funds, that gives some comfort.

Check their performance across market cycles. Did they protect capital during downturns? Did they capture upside during rallies?

3. Reputable AMC: The fund house's overall reputation matters. Large, established AMCs with consistent track records across multiple funds offer more reliability than newer or smaller AMCs.

4. Fits Your Asset Allocation: The NFO should fit your overall portfolio strategy. Do not buy an NFO just because it is new or exciting.

If you already have exposure to small-caps, a new small-cap NFO adds little value. It just concentrates your risk.

👉 Tip: Apply the "wait and watch" principle. If an NFO interests you, note it down. Review it after 12-18 months. If it has performed well and still fits your strategy, consider investing then.

Why Existing Funds Are Usually Safer for NRIs

For most NRI investors, existing funds with proven track records make more sense. Here is why:

Transparency: Existing funds disclose their full portfolio monthly. You know exactly what stocks or bonds you own. NFOs only share their intended strategy, not the actual holdings.

Performance Comparison: You can compare an existing fund against its benchmark and peer funds. Did it beat the Nifty 50 or BSE Sensex over 5 years? How did it rank in its category? This comparison is impossible with NFOs.

Lower Risk: Existing funds have weathered market cycles. You know they can survive volatility. NFOs are untested.

Better Expense Ratios: Established funds often have lower expense ratios than NFOs. As per SEBI norms, expense ratios decrease as fund AUM grows. New funds with smaller AUM tend to have higher costs.

Easier Due Diligence: From Dubai or any other location abroad, researching an existing fund is straightforward. Check Morningstar, Value Research, or AMFI data. For NFOs, you are largely relying on the AMC's promises.

How to Evaluate an Existing Fund Before Investing

If existing funds are safer, how do you pick the right one?

Here is our checklist at Belong:

1. Performance Over Multiple Periods: Check 1-year, 3-year, and 5-year returns. Consistency matters more than one great year.

2. Risk-Adjusted Returns: Look at Sharpe Ratio and Sortino Ratio. These show how much return the fund generated for the risk it took.

3. Fund Manager Tenure: How long has the current manager been running this fund? Frequent manager changes can disrupt performance.

4. Expense Ratio: Lower is better. A 2% expense ratio versus 1% compounds to significant differences over 10-20 years.

5. AUM Size: Very small funds (under Rs 100 crore) may face liquidity issues. Very large funds may struggle to generate alpha. Mid-sized funds often strike the right balance.

6. Category Rank: Where does the fund rank within its category? Top quartile funds consistently outperform bottom quartile funds over time.

Use tools like Belong's Mutual Funds Explorer to compare options side by side.

NFOs vs Existing Funds: A Side-by-Side Comparison

Factor	NFO	Existing Fund
Track Record	None	3-10+ years available
NAV	Rs 10 (arbitrary)	Based on portfolio value
Portfolio Visibility	Only stated objectives	Full monthly disclosure
Risk Assessment	Difficult	Based on historical data
Expense Ratio	Often higher initially	Usually optimized
Liquidity	May have lock-in	Generally liquid
SEBI Protection	30-day deployment rule	Standard regulations
Best For	Unique strategies only	Most investors

Tax Implications for NRIs: Same for Both

Good news here. Whether you invest in an NFO or an existing fund, taxation rules remain identical:

Equity Funds (including equity-oriented NFOs): Short-Term Capital Gains (held less than 1 year): 20% plus surcharge and cess Long-Term Capital Gains (held more than 1 year): 12.5% on gains exceeding Rs 1.25 lakh per year

Debt Funds: Taxed as per your income slab, regardless of holding period

TDS is deducted at source for NRIs. Your AMC handles this automatically.

If you live in the UAE, you can claim DTAA benefits to avoid double taxation. India and UAE have a tax treaty that helps.

For detailed guidance, read our complete guide on mutual fund taxation for NRIs.

Common Mistakes NRIs Make with NFOs

Over the years, we have seen these patterns repeatedly:

Mistake 1: Chasing the "Rs 10 is cheaper" myth. We covered this above. It is not cheaper. It is just a starting point.

Mistake 2: Investing based on theme hype. "AI funds," "EV funds," "Metaverse funds" sound exciting. But thematic funds are risky. If the theme does not play out, you lose money.

Mistake 3: Buying multiple NFOs for "diversification." Owning 10 different NFOs is not diversification. If all are equity funds investing in similar stocks, you have concentrated risk, not diversification.

Mistake 4: Ignoring the fund manager's other funds. Before investing in an NFO, check how the same manager's existing funds have performed. Poor performance elsewhere is a red flag.

Mistake 5: Investing via lump sum in NFOs. If you must invest in an NFO, consider waiting until it opens for regular investment. Then start a SIP to average your cost.

A Better Alternative: GIFT City Mutual Funds

For NRIs, there is an option many do not know about: GIFT City mutual funds.

These are USD-denominated funds operating out of India's GIFT City (Gujarat International Finance Tec-City). They offer:

Zero capital gains tax for NRIs. This is a significant advantage over regular Indian mutual funds.

No NRE/NRO account needed. You can invest directly in USD.

Professional management. Funds are managed by established Indian AMCs.

Regulatory oversight. GIFT City funds are regulated by IFSCA (International Financial Services Centres Authority).

At Belong, we help NRIs invest in GIFT City mutual funds like DSP Global Equity Fund and Tata India Dynamic Equity Fund.

These have established track records, unlike NFOs, and come with significant tax advantages for global Indians.

👉 Tip: Before investing in any NFO, explore whether a similar strategy is available in GIFT City with better tax treatment.

How to Invest in Mutual Funds as an NRI

Whether you choose an existing fund or an NFO, the process is similar:

Step 1: Open an NRE or NRO Account You need a rupee-denominated bank account. NRE accounts allow full repatriation. NRO accounts have limits.

Step 2: Complete KYC Submit your PAN card, passport, visa, and overseas address proof. Many AMCs now offer video KYC for NRIs.

Step 3: Select Your Fund Use our Mutual Funds Explorer to compare options. Focus on existing funds with 3-5 year track records.

Step 4: Invest via SIP or Lump Sum For most NRIs, SIPs work better. They average out market volatility and enforce discipline.

Step 5: Monitor Periodically Check your portfolio quarterly. Rebalance annually if needed.

For US and Canada NRIs, note that FATCA compliance creates additional hurdles. Some AMCs do not accept investments from these countries. Check eligibility before starting.

The Bottom Line

NFOs are not inherently bad. But for most NRI investors, existing funds with proven track records offer better risk-adjusted outcomes.

The Rs 10 NAV is marketing, not value. Track record is safety. Transparency is trust.

If you are an NRI looking to invest in Indian mutual funds, start with established funds. Use our Mutual Funds Explorer to compare options. For tax-efficient investing, explore GIFT City funds that offer zero capital gains tax for NRIs.

Still confused about which funds to choose? Join our WhatsApp community where many NRIs discuss these exact questions daily. Get real insights from people facing similar decisions.

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