Disadvantages of NFO
1. Higher Initial Costs: Some NFOs may have higher initial costs, such as sales charges or front-end loads, compared to existing mutual funds. These costs can erode potential returns, especially in the early stages of investment.
2. Limited Liquidity: NFOs may have limited liquidity during the initial subscription period, as investors cannot buy or sell units on the secondary market until after the NFO period ends. This lack of liquidity can restrict investors‘ ability to exit their investments if needed.
3. Higher Risk of Failure: New mutual funds, including NFOs, face a higher risk of failure compared to established funds with a proven track record. If the NFO fails to attract sufficient assets or if the investment strategy underperforms, investors may experience losses.
4. Potential for Underperformance: While NFOs offer the potential for early growth, there is also a risk that the fund may underperform or fail to meet investors’ expectations. Without a track record, investors may be taking on additional uncertainty regarding the fund’s future performance.
5. Limited Availability of Information: Since NFOs are newly launched funds, there may be limited information available to investors about the fund’s investment holdings, portfolio composition, and other relevant details. This lack of transparency can make it challenging for investors to make informed decisions.