An Asset Management Company (AMC) raises funds from early investors through a New Fund Offer (NFO) before listing its mutual fund schemes in the market. A mutual fund’s NFO also contains details regarding the fund manager, company stocks to be bought, and types of securities to be invested with the raised capital. So, investors get a complete idea of their investment strategies before investing in an NFO. 

NFO is similar to an Initial Public Offering (IPO) that a company launches to raise capital before listing its stock in the stock market. More insights about NFOs, their benefits, liquidity options, and how to invest in an NFO are shared in this blog. Let’s start!

What is a New Fund Offer (NFO)?

NFO is an investment opportunity for those who are interested in mutual funds. Any AMC or mutual fund house is required to launch all their mutual fund schemes as an NFO irrespective of whether they are open-ended or closed-ended funds. 

After the completion of the investment period, you cannot invest in close-ended mutual funds. Also, you cannot withdraw your investment before the maturity date. You can invest in open-ended funds again after the completion of NFO’s subscription period. In both cases, units are allotted based on the fund’s Net Asset Value (NAV), which fluctuates daily after the NFO period. 

How Does an NFO in Mutual Fund Work?

An AMC or mutual fund house introduces an NFO to raise money for a new mutual fund scheme. During the NFO period, investors can subscribe to the scheme at the initial offer price, usually set at ₹10 per unit. Securities and Exchange Board of India ( SEBI)  regulations say that an NFO must close within the 30th day from its launch date. 

The capital raised during this period is further invested according to the mutual fund scheme’s investment goals and strategies. 

Once the subscription period ends, investors can continue to purchase or sell units of the mutual fund (only if it is an open-ended fund) from the mutual fund house based on its ongoing NAV.

Consider These Factors Before Investing in a Mutual Fund’s NFO

Here are some things to remember before investing in a mutual fund’s NFO: 

  1. AMC’s Credibility 

Check the history of an AMC and how their mutual fund schemes have performed in the past. Also, go through the portfolio and track record of all the fund managers involved in that particular NFO. Investing in an NFO offered by a reputed AMC is crucial as it has a direct impact on an NFO’s performance. 

  1. Investment Capital 

The NAV of the mutual fund at the time of NFO is 10. The number of units to be purchased comes under the AMC’s discretionary powers. Therefore, check the minimum number of NFO units set by the AMC to figure out how much money you’ll need to invest in it. 

  1. Read The Documentation Carefully 

The NFO update released on the AMC website comes with detailed documentation. This documentation lists down the types of securities that will be purchased with the investor’s money. By going through these details, you can evaluate if it is worth investing in a mutual fund scheme. 

If an NFO’s investment strategy and the AMC’s reputation don’t impress you, feel free to explore the opportunities offered by other mutual fund houses. Use a mutual fund factsheet to evaluate a mutual fund on the basis of its portfolio holdings, performance data, expense ratio, and other metrics.

Step-By-Step Details To Invest In An Upcoming NFO 

An AMC’s website usually contains all the details and investment options associated with an upcoming NFO. You can also check out the online resources such as Share.Market and invest in the upcoming NFOs through the PhonePe and Share.Market app. iOS users can download the Share.Market app here.  

Advantages of Learning Investment Strategies & Earning High Returns With NFOs

By studying different NFO mutual funds, you can learn how to build a diverse investment portfolio. You can think of it as a learning curve to improve your investment strategies. Here are a few notable advantages of investing in a mutual fund’s NFO: 

  1. Exposure to New Ideas 

NFOs may come with innovative investment strategies which could help you diversify your investment portfolio. 

  1. Low Investment Amount 

The minimum amount to be invested in an NFO in mutual funds can be Rs. 1000 or even lower. It allows new investors to explore the benefits of investing in stock-market instruments. 

  1. Teaches Patience & Discipline 

NFOs usually require you to invest early, without the benefit of an existing track record of the fund’s performance. This requires a long-term perspective and encourages one to remain invested through market cycles rather than frequently switching positions. Over the longer term, this discipline allows one to build wealth potentially in a more impactful way. 

  1. You Learn To Make Independent Investment Decisions 

With an NFO, because there is no past performance data to consider, you judge the fund by its strategy, its sector, or perhaps the track record of the fund manager. Doing this gives you the confidence to analyse investment opportunities based on fundamentals, not based on past returns.

By investing in a mutual fund’s NFO, you gain insights into how investments are to be diversified and managed. You can explore online platforms like Share.Market that offers a comprehensive outlook of stocks, ETFs, Futures and Options, IPOs, mutual funds, and other securities. Also, you may open a free demat account on Share.Market today and keep track of all your investments with one click!

In a Nutshell 

As a smart investor, understanding the meaning or full form of NFO must not be your only goal. You must also evaluate the investment strategies and ideas that different NFOs bring to the table. Finally, make an informed decision after analysing the risks and benefits that a specific NFO mutual fund offers! 
Want to inform your contacts about the advantages of investing in an NFO? Share this blog with them and let us know your thoughts on the upcoming NFOs!

FAQs

1. What is NFO in mutual funds?

An Asset Management Company (AMC) raises funds for its mutual fund schemes by introducing an NFO (New Fund Offer) in the market. You can subscribe to a certain number of NFO units as stipulated by the NFO at a fixed price. The raised capital is then invested into different stock-market instruments as per the fund’s investment strategies.

2. Can we redeem NFO units?

If you have invested in an open-ended fund, you can redeem the NFO units at the ongoing NAV (Net Asset Value) once the fund reopens for purchase and redemption. To redeem the invested NFO units for close-ended funds, you have to wait till the investment period is over.

3. Do I receive the same mutual fund units once the NFO gets listed?

Yes, you receive the same mutual fund units that were paid for during the NFO allocation. If you have invested in an open-ended fund, you can buy and sell the units as per the current NAV (Net Asset Value).

4. How does NFO different from IPO?

An NFO (New Fund Offer) is for mutual fund schemes, while an IPO (Initial Public Offering) is for company stocks. Both aim to raise capital, but for different types of investment instruments.

5. What happens after an NFO closes?

After an NFO closes, units are allotted to investors. For open-ended funds, you can then buy or sell units at the daily fluctuating Net Asset Value (NAV). Closed-ended funds typically remain locked until maturity.

6. What factors should I consider before investing in an NFO?

Before investing in an NFO, consider the Asset Management Company’s (AMC) credibility, the fund manager’s track record, the fund’s investment strategy, and read all documentation carefully to ensure it aligns with your financial goals.