A new fund offer (NFO) is a process through which a mutual fund company issues new units of a fund to the public for the first time. This is done to raise capital from investors to invest in a particular set of securities or assets as per the fund’s investment objective.
The process of an NFO typically involves the following steps:
- Announcement: The mutual fund company announces the launch of a new fund offer, which includes the investment objective, asset allocation, and investment strategy of the fund.
- Subscription: Investors can subscribe to the NFO during the subscription period. This period usually lasts for a few weeks and investors can apply for the units through various channels such as online portals, distributors, and brokers.
- Allotment: After the subscription period ends, the mutual fund company allots units to the investors as per the amount invested and the prevailing net asset value (NAV) of the units.
- Listing: The units of the mutual fund are then listed on the stock exchanges for trading. Investors can buy or sell these units on the stock exchanges just like any other security.
Investors can invest in an NFO through a lump sum investment or a systematic investment plan (SIP). An SIP allows investors to invest a fixed amount of money in the fund at regular intervals, such as monthly or quarterly.
NFOs are often used by mutual fund companies to launch new schemes or to diversify their product portfolio. They offer an opportunity for investors to invest in a new fund at the initial NAV, which is usually Rs. 10 or Rs. 100, depending on the fund. However, investors need to carefully evaluate the investment objective and the past performance of the fund manager before investing in an NFO.