What is a NFO (New Fund Offer)
A New Fund Offer (NFO) is a first-time subscription offer for a new scheme that is launched by an Asset Management Company (AMC). It allows investors to subscribe to the units of a newly launched scheme at a pre-determined price, before the scheme re-opens for normal subscription.
How Do NFOs Work?
When a NFO is launched, the Mutual Fund houses/ AMC(s) sets a face value. Investors can subscribe to the NFO within a specified window. After the closure of NFO, the fund invests the collected capital according to the scheme’s investment objectives. After the New Fund Offer (NFO) period ends and the scheme begins investing as per the investment objective , the Net Asset Value (NAV) is calculated daily based on the performance of the investments made.
Difference Between NFO and IPO
Though both NFOs and IPOs allow the public to invest in a new financial instrument, they operate differently.
NFO: This is a first-time offering of a mutual fund scheme to the public by an AMC that allows investors to subscribe to the units at a pre-determined price.
IPO (Initial Public Offering): An IPO is the first sale of shares by an unlisted company to the public for subscription and includes an offer of sale of specified securities. Unlike NFOs, IPOs are specific to a particular company, and the stock price is determined by market demand.
Important Rules Around NFOs
When investing in NFOs, there are a few important points to be considered:
- Minimum Investment: Most NFOs have a minimum investment requirement, which ranges from Rs.100/- to Rs.5,000/-, depending on the scheme to be launched by AMC(s).
- Offer Period: NFOs are available only for a limited period. Once the offer period ends, you cannot invest at the pre-determined face value of the units.
Things to Keep in Mind Before Investing in NFOs
Following factors to be considered, before investing into an NFO:
1. Fund Objectives: One may read the investment strategy and risk factor/profile outlined in the Scheme related documents to understand the fund’s approach.
2. Fund Manager’s Track Record: One may look into the past performance of the fund manager to assess their experience and management style.
3. Risk Profile: Evaluate whether the fund’s risk level aligns with your risk tolerance.
How Do You Invest in a NFO?
- Online Investment: Most of the fund houses allow you to invest directly via their website or app.
- Brokerage Platform: You can also invest through a mutual fund distributor or an online brokerage platform.
- Offline Application: Fill out the physical application with basic details including the amount you want to invest.
Conclusion
NFOs can be used to get early exposure to a new mutual fund scheme. Before you decide to invest, make sure you understand the fund’s strategy, risk profile, and how it fits with your overall investment goals. As with all investments, careful research and planning are key before you consider investing in NFOs.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
The Nifty and SENSEX indices mentioned herein are owned by NSE Indices Limited and AIPL, a wholly owned subsidiary of BSE Limited respectively. All information provided is for informational purposes only.
Please note that this article or document has been prepared on the basis of internal data/ publicly available information and other sources believed to be reliable. The information contained in this article or document is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party in any manner. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article or document.
Published on Jan 16, 2025
