Mutual Funds’ Investments

What is an NFO?

A New Fund Offer (NFO) is the first-time subscription offering of a new mutual fund scheme launched by an asset management company (AMC). Similar to an Initial Public Offering (IPO) in the stock market, an NFO allows investors to purchase units of a mutual fund at the offering price, typically set at ₹10 per unit in India. Once the NFO period closes, the fund’s units are available for purchase or redemption at prevailing Net Asset Value (NAV).

How Does an NFO Operate?

  1. Announcement: The AMC announces an NFO, detailing its investment objective, theme, and tenure.

  2. Subscription Period: The NFO remains open for a fixed subscription period.

  3. Price: Units are sold at a fixed price, usually ₹10 per unit during the NFO period.

  4. Fund Mobilization: After the subscription closes, the AMC pools the collected money to create a diversified portfolio of securities as per the scheme’s mandate.

  5. Listing: Post-NFO, units are available for trading at NAV, which fluctuates based on the market value of underlying assets.

Key Features of NFOs

  • Limited Subscription Window: Investors must act within the NFO period to subscribe to the scheme.

  • Benchmarking: Each NFO is benchmarked against an index or standard to track its performance.

  • Investment Mandate: Clearly defined objectives guide the allocation of assets, ensuring transparency.

  • Lock-In Period: Certain NFOs, such as close-ended funds, have a predefined lock-in period, restricting withdrawals during this time.