What Is NFO? New Fund offer

What Is NFO? Why and how to invest in it?

If you invest in mutual funds, you must have often heard about NFO. When an AMC opens a mutual fund scheme to the general public for the first time, it does so through NFO. Just as a company is listed for the first time in the stock exchange during IPO, in the same way any new scheme in mutual fund is launched for the first time through NFO. You can also call it IPO of mutual fund. “What is NFO” Through this article, we will try to understand all the processes of NFO and how it is beneficial for us.

What is NFO?

NFO means: New Fund offer.

NFO is the process through which units of a mutual fund scheme are made available for purchase for the first time by an AMC (Asset management company). Whenever a mutual fund house starts a scheme for the first time, it is first opened for subscription to the general public through NFO. This subscription usually remains open for 10 to 15 days during which we can buy units of the mutual fund at its face price i.e. Rs 10. After the closure of the NFO, the money invested by the people in its subscription is invested in its asset class to build the portfolio of the fund. This asset class can be stocks, government securities or commodities. Depending on the performance of these assets, the NAV of the units of the mutual fund scheme increases or decreases and the higher the NAV increases, the better will be your returns.

Types of NFO

NFO can be mainly of 3 types:

Open Ended: Open ended funds are those which are always open for investment. In these you can invest and redeem money anytime. If NFO of an open ended scheme is launched, it is reopened for investment a few days after the subscription is closed.

Close Ended: You can invest in this type of fund only during the NFO period. Once the NFO is closed, no investment can be made in it. On maturity of these funds, the principal amount along with the return is credited to the customer’s account.

Interval Fund: Interval fund has the characteristics of both open ended and closed ended funds. These funds are opened for a fixed time interval during which investment and redemption can be made only in them. Apart from this time period, no transaction of any kind can be done in these funds.

How does NFO work?

During NFO, an AMC or fund house offers its new fund to investors for subscription for the first time. The following steps are involved from its launch to unit allotment.

NFO Face: AMC launches a new scheme and does its marketing and advertising. In this, it makes common people and big investors aware about its features, nature and objectives.

Subscription: Common investors can invest in these during the subscription period. During this phase, units of the mutual fund are offered at face value which is usually Rs 10. NFO subscription remains open for several days.

Minimum Investment: A minimum amount is set by the mutual fund house for investment in NFO. The investor has to invest equal to or more than this amount.

Allotment: After the end of the NFO tax period, units are allotted to the investors according to their investment. After allotment, the money received from subscription is invested in its theme asset class to build the fund’s portfolio.

Trading: After the subscription is over, the NFO opens for trading to the general public after a certain time period. Here investors can buy and sell mutual fund units anytime.

How to invest in NFO?

It is very easy to invest in NFO in India. For this you:

First of all choose the new fund offer in which you want to invest. want. Different AMCs in the market keep launching NFOs based on different themes. You can choose one according to your investment goal, risk and objective.

If you are already an investor in financial security then your KYC must be made, if you are investing in mutual funds for the first time then make your KYC first. You can make this by applying online or submit offline application to KRA.

After this you can submit NFO application through any mutual fund distributor, direct AMC or online platform. Along with the application, you also have to make payment for the applied unit.

Once the NFO application is submitted, wait for its allotment. Once the allotment is done, you are provided with the account statement and other account related things.

What things should be kept in mind in NFO investment

Investment goals: The reason or goal behind investing can be different for every investor. This goal depends on their age, income and risk. Therefore, before investing in any NFO, it is important to analyze things like nature, objective, theme and risk of the fund and keep in mind whether it is matching with the investment goal or not.

Fund House Performance: We invest in any investment tool with the hope that it will give us a good return and help in increasing our wealth. Therefore, whatever AMC you are going to invest in NFO, definitely find out the performance of its other funds and the capability of the fund manager.

Expense Ratio: Expense ratio means the charges that mutual fund houses charge from investors for the management of their funds. The higher their ratio, the greater will be the impact on investment returns. Therefore, before investing in NFO, keep its expense ratio also in mind.

Minimum Investment and Exit Load: Before investing in NFO, know what is the minimum investment limit in it. Exit load means the charges levied on taking redemption from the fund. Depending on the theme of the fund, these charges may or may not be non-applicable. Therefore, keep in mind that if you are investing for short term, then there should not be any or much exit load on it.

Comparison with old funds: There may already be funds available in the market matching the theme of NFO. You can improve your investment decision by comparing the new fund with the old one.

Offer Document: When an NFO is launched, AMC also publishes the offer document related to it. In this document, necessary analysis is given on the basis of theme, objective, asset class and market data etc. of NFO. By reading this offer document, you can gather all the necessary information about NFO.

Difference between NFO and IPO

When an AMC launches and offers a mutual fund scheme for subscription for the first time, it is called NFO. On the contrary, when a company lists its shares for the first time in the stock exchange for investing and trading by the common people, then it is called IPO. Which is called Initial public offer.

In NFO, units of mutual funds are bought and sold which are managed by the fund manager, whereas in IPO, company shares are bought and sold for tax reasons, the company aims to raise capital for its expansion and repayment of debts. It is possible.

The returns of NFO depend on the assets being invested in it and the ability of the fund manager, whereas the returns of IPO depend on the performance and valuation of the company.

Whenever AMC wants to launch a new mutual fund scheme, it can do so through NFO, whereas for a company, IPO is a one-time process through which it transforms from private to public.

Benefits of NFO

NFOs are usually launched on the basis of new themes and strategies. This brings a new investment opportunity for us.

In NFO, units of mutual funds are available for investment in face value which is usually Rs 10. In this way investors can buy mutual fund units in the initial phase with less money.

NFOs are launched keeping in mind the present situation and sentiment of the market. These often have the ability to perform better than the older funds running in the market.

Disadvantages of NFO

We can track old mutual funds on the basis of their past performance and historical factors which help us in taking right investment decisions but in the case of NFO, there is no past performance record of the fund due to which mistakes can be made in taking investment decisions. Might be possible.

Similar to the funds being launched in NFO, funds of other mutual fund houses may already be in the market, which are easy to analyze on the basis of historical data.

The future performance and success of NFO is not guaranteed which is not good for the returns to the investor.

Conclusion

Amc launches a new mutual fund scheme through NFO and this is a great opportunity for people to invest on a fresh theme and according to the ongoing market situation. During NFO, investors can buy units of mutual funds at face value which is usually Rs 10. Investing in NFO can give you good returns in the long term, but before investing in it, it is important to check the facts related to your objective, risk and capital.