What is a new fund offer in mutual funds?

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An NFO or New Fund Offer is the first-time subscription offer of a new mutual fund scheme with a new investment objective launched by an Asset Management Company (AMC). In most cases, the NFO price is set at Rs 10 per unit, and there is no entry load. Investors can apply for units in the scheme during the pre-defined NFO period. After the NFO period is closed, investors shall take exposure in these funds at their prevailing Net Asset Value (NAV).

Since NFOs are offered for both closed-end and open-ended mutual fund schemes, it’s a good way for investors to get started in mutual funds. NFOs offer an opportunity to buy units at the scheme’s launch price, which is generally lower than the prevailing market price. This gives investors the opportunity to invest earlier and enjoy higher returns as the scheme grows over time.

Features of a new fund offer in mutual funds

  • The AMC launches a new fund offer to raise capital from the public to invest in bonds, securities, shares, and so on.
  • Investors can explore new investment strategies and themes previously unexplored by the AMC.
  • Closed-end mutual fund schemes may launch an NFO at peak market times which may allow investors to select investments at the right time.
  • Closed-end fund schemes are available to purchase during NFO and can be redeemed by investors when the funds reach maturity.
  • When an NFO for an open-ended fund closes, an investor can still purchase or sell units at the NAV declared by the fund.

How to invest in an NFO online?

You can easily invest in NFOs through online platforms such as websites and apps. Just compare the fees, investment options, and terms and conditions beforehand and choose the platform accordingly. After that,

  • Go to the company’s website or open the dedicated app.
  • Navigate to the mutual funds’section.
  • Click on select an NFO.
  • Complete your e-KYC in a few minutes.
  • Provide investment details and confirm.

Things to consider before investing in an NFO 

When an NFO is launched, the AMC comes out with a detailed offer document which consists of the Statement of Additional Information (SAI) and Scheme of Information Document (SID).

The document contains all the information related to the scheme objective, investment strategy, asset allocation pattern, benchmark index, profile of the fund manager, etc. SAI provides all the statutory and other information relevant to the AMC. Here are the critical aspects to look for in such a document:

  • Check the investment objective of the fund to see if it matches your mutual fund investment
  • The asset allocation pattern will give you an idea of how the fund will allocate its assets across different asset classes.
  • The investment strategy will give you an idea about the approach the fund manager will take to achieve the investment objective.
  • Check the fund manager’s track record to see if they have a good track record of delivering returns.
  • Evaluate the reputation of the asset management company. The success of other schemes previously launched by the AMC can be a good evaluation mechanism.

Closing notes

Investing in an NFO can be an opportunity to get in on the early stage of a successful mutual fund at a low cost. However, you must align your investment goals with that of the scheme so that there is no mismatch between what you expect and what the scheme sets out to achieve.

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