Equity markets are roaring, and so are the New Fund Offers (NFOs) on the street. Though the number of equity and debt NFOs pales in comparison with the one as was seen between the years 2003 and 2007, the moot question is, whether to invest in the NFOs or not, and which NFO is the best investment option.

Here are the 5 things you should watch out before investing in NFOs:

(1) An NFO is a mutual fund debuting in the markets. That is it’s when a fund is launched and is offered to the public before it is opens for daily transactions, just like an IPO where a stock is put on sale in the primary market for the first time before it gets listed.

(2) NFOs can be a good investment option if wisely chosen. What one really needs to understand is the basis behind the launch of a scheme. Most of the schemes launched have the optimism in the markets and other macro factors as the basis.

(3) People generally confuse NFOs with IPOs. But one needs to understand that there is a lot of difference between them. NFOs are launched at a face value or base NAV for the initial subscription prefixed at the time of filing offer document for the NFO, unlike IPOs which come with a price band based on the corpus they want to raise and the number of shares they want to float.

(4) Scheme information document of the NFO carries brief details of the investment strategy to be followed and the universe of stocks where they are going to invest which must be read to judge whether or not it suits ones risk return preferences. One should also go through the risk factors of the scheme at least on broader terms if not in full.

(5) Understand the key features of the scheme, its attributes such as whether it is a close ended or open ended, if it is close ended what is the lock-in period, what is the load structure or what is the entry and exit load, period for which exit load is applicable.