What’s a New Fund Offer (NFO)?

A first-time subscription launched by an asset management company (AMC), New Fund Offer (NFO) allows you to invest in a new scheme launched by the AMC. The main objective for the AMC for launching a new mutual fund offer in the market is for raising capital from the public for buying securities such as shares and government bonds from the market.

 

The ideology behind a New Fund Offer is very similar to that of an Initial Public Offer. Both aim to raise capital. However, one major factor that investors must remember is that AMCs offer new NFO mutual fund schemes only for a stipulated period. Thus, investors can only invest in these new NFO investment schemes at the offer price during the stipulated period. Once the stipulated period elapses, investors can invest in these schemes only at the prevailing NAV at that point in time.

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 NFO mutual fund schemes – open and close-ended schemes

AMCs offer new NFO mutual fund schemes as open-ended and close-ended schemes. Open-ended NFO is a perpetual kind of fund. Thus, once the new mutual fund is launched it continues to exist without an end date. However, closed-ended NFO funds come with a fixed duration such as 3 years, 5 years, and 7 years. Investors can buy open-ended funds anytime.

 

They can invest even after the closure of the new fund offer. However, you can invest in a close-ended fund only during the offer period. Once the offer period elapses, you cannot invest into close-ended funds. Open-ended funds are generally considered more investor friendly as they offer anytime investment and redemption compared with close-ended funds. NFO investment has become a popular option for many investors largely because its Net Asset Value (NAV) is priced at Rs. 10 per unit, compared with other open-ended schemes that have a higher NAV.

 

Disclaimer : *investment in securities market are subject to market risks, read all the related documents carefully before investing

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