Manufacturing Fund NFO (New Fund Offer)

Manufacturing fund NFO or thematic funds are equity oriented new mutual fund schemes that particularly invest in the manufacturing sector. The funds mainly target the companies indulged in manufacturing belonging to specific sectors like auto and auto ancillaries, capital goods, healthcare, chemicals, oil and gas, and consumable fuel.

What is an NFO or New Fund Offer?

NFO is the launch of new funds by the asset management company with an aim to raise money for buying stocks for the fund’s portfolio and get it off the ground. The main objective of an NFO fund is to invest in capital appreciation over a long time while investing in financial instruments of manufacturing companies. However, it is not assured that your investment goals will be achieved from these funds. No returns are guaranteed by these funds.

Characteristics of Manufacturing Fund NFO

Let us dig in deep about manufacturing fund NFO to identify what makes it different from any other kind of funds:

Sector Specific Investment

These funds are a collective investment in the equity segment and instruments of companies involved in manufacturing activities. The main focus of investment is companies like industrial goods, capital goods, construction, engineering, infrastructure, automotive, consumer durable, etc.

Long Term Investment

The primary objective of manufacturing funds is to generate wealth by achieving long term capital growth by capitalizing on the growth potential of the manufacturing sector.

Why to invest in manufacturing funds?

The economy of India is on the path of transition from mid growth to achieve long term sustainable growth which has the potential to surge the GDP of the country. A positive shift in GDP and employment towards manufacturing from agriculture is a boost towards the Indian economy. In the coming years, the manufacturing sector in India is expected to grow nearly 3 times, contributing to overall GDP of the Indian economy.

Opportunity matrix

Manufacturing sector is gradually becoming a natural fit for the Indian economy encouraging the investors to grab the opportunity at the right time and gain maximum returns. India is at a developing stage with a large consumer base that can expand with growing GDP and income levels in the country. Several programs launched to promote Make in India have promoted investments in this particular sector.

Efficient Resources

India is a vast country with a variety of resources available for manufacturing is an advantage to the manufacturing sector. India has skilled labor and the cost of resources is substantially lower as compared to other countries. Also, the efficiency of support services, infrastructure and logistics is improving on a rapid basis.

Government Support

In India, the government is constantly supporting and promoting the investments into the manufacturing sector through schemes and programs like Make in India, Atma Nirbhar Bharat, and PLI based manufacturing. This has led to the boost in the manufacturing sector and has resulted in launch of manufacturing funds.

Regulatory Services

The ease in regulatory issues like retrospective taxation, carrying out easy business activities, FDI policy, and approval of projects through single window clearance and a sole of free trade agreements has allowed the investment in this sector to be successful.

Risks in Manufacturing Funds NFO

Several reasons justify the buying of manufacturing funds NFO, however, there are some cons of investing into these funds which should be thoroughly known by an investor.

Liquidity Risk

Investing into manufacturing funds requires a large amount and NFOs have low trading volume as it only targets cash and equity segments. The lower trading volume makes it difficult to buy or sell the shares without affecting the prices.

Market Risks

Manufacturing industry is heavily influenced by the market factors and economic conditions of the country. During the downturns of the economy, the particular industry can be affected negatively because of the reduction in demand for their products which can therefore lead to low revenues and profits.

NFO Risks

As a New Fund Offer, the historical performance of these funds cannot be tracked which makes it challenging to assess the potential of these funds based on their past performances. Moreover, higher initial costs related to marketing and distribution is associated with NFOs and which makes the investment costly. These higher costs impact early returns for an investor.

Management Risk

The funds require efficient management strategies with the management team and their strategic decisions. There are certain risks of management efficiencies as poor management can sometimes lead to inefficient decision making that can potentially harm the portfolio of an investor.

Technological Risks

A manufacturing company continuously requires rapid technological advancements to stay competitive and innovative in the market which requires heavy investment and if it is not able to do so then it can hamper an investor’s portfolio.

Manufacturing Sector Investments Based on Technical Analysis

Instead of investing in manufacturing funds NFO, investments in particular manufacturing stocks can be highly beneficial. They can give compounding returns when investments are done with proper technical analysis using the demand and supply theory, top down approach, multiple time frame analysis, sector rotation, EMA support, and consider various other technical factors. It will also neglect the risks of NFO funds and ensure greater returns in the long term. Trading in the Zone course offered by GTF is purely based on technical analysis where you can learn about investment and trading with risk management as well.

Conclusion

Manufacturing Fund NFO is a new fund offer that is introduced by the asset management companies where the companies invest the amount as a fund in the manufacturing sector only that includes companies’ related manufacturing industry like chemicals, healthcare, oil and gas, consumable fuels, capital goods, etc. However, to eliminate the risks of new fund offers, investors should prefer investing in stocks based on a technical approach.

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