NFO in Mutual Fund - New Fund Offer

New Fund Offer or NFO in Mutual Fund is the way of collecting funds by fund house to start a new mutual fund with the goal of accumulating wealth for their investors. It is an opportunity for the investors as well to start investing in the type of mutual funds they have not invested in yet. NFO in Mutual Fund allows you to subscribe to new mutual fund during a specific time frame, after which the mutual fund gets listed in open market in case it is open ended fund.

Let us discuss more about NFO in Mutual Fund in detail.

What is NFO in Mutual Fund?

NFO in Mutual Fund is the new fund offer provided by the fund house
It is an attempt by the Mutual Fund Houses to fill the gaps where investors can see the potential to invest based on their financial goals
So let’s say if we don’t have any mutual fund that invest in top 500 companies in NSE (National Stock Exchange) in India, so the mutual fund house sees this opportunity to launch NFO (New Fund Offer) with mutual fund having top 500 companies
The investors who wanted to be invested in all top 500 companies in order to get returns and take risks from large cap to small cap companies, see this NFO as an opportunity to invest in order to achieve their financial goals
Usually, NFO in Mutual Fund is offered by fund houses for subscription at Rs. 10. The funds are based and based on the strategy, it is invested to give profits to investors
Some NFO are open ended, which means after subscription during specific time frame, they are open for buying and selling in the market
When these new mutual funds are listed, they can even give instant better returns to investors who had invested via NFO. They can choose to hold or sell these mutual funds after getting listed in the market

ALSO READ: Types of Mutual Funds in India

How NFO in Mutual Fund works?

The working of NFO in Mutual Fund is quite simple:

The AMC (Asset Management Company) sees and analyzes the gaps in the current market of mutual fund, and sees whether investors are looking to invest in such mutual funds if they fill the gap
So the AMC introduces the NFO or New Fund Offer with good marketing around various regions to encourage investors to invest
Investors need to read the brochure online or offline to know the details about the new mutual fund, the fund house is offering and can decide whether to invest or not
If they see it as an opportunity, they invest in this NFO, and if they realize that they are already invested in such theme of mutual fund present in the market, they do not invest
In this way it is important for fund house to use proper strategy, and not to repeat the mutual fund that is already present in the market
Usually the subscription amount for this NFO is Rs. 10 per unit initially, and after this fund is listed in the market the value can increase to give better returns to investors, or can decrease based on certain conditions
If the fund is closed ended, than the new investors cannot subscribe to this mutual fund after the expiry of subscription date

ALSO READ: What is Equity Mutual Fund, Features and Benefits

Is NFO in Mutual Fund a good investment?

It is believed that NFO or new fund offer is a good opportunity for investor to invest in a theme he / she is not invested in yet.

NFO also provides good returns once the mutual fund gets listed in the open market after subscribing at base value of Rs. 10.

However, it is important to read the fine print of details regarding NFO, like what type of securities (equities, debt or bonds) the NFO will invest in, what is the time horizon, whether open ended or closed ended and what is the lock in period in case if there is any fixed tenure it is required for you to invest in it.

Overall, NFO can turn out to be good investment provided you have read the terms and conditions of New fund offering.

Who opt to invest in NFO?

Usually the investors who see the market at it’s peak invest in the NFO after all the marketing is done by the fund houses, with the expectation of getting more better returns as market are at it’s peak.

However, you should also read the documents and know the theme in which the mutual fund will invest in.

Those investors who see the opportunity to fill the gap with their investment journey also see NFO as an opportunity to invest in new mutual fund.

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Things to consider while investing in NFO

There are multiple things you should consider while investing in NFO offered by fund houses:

Fund Objectives

You should know the objective of the NFO. It can be to cover top 500 companies in the NSE or BSE, or to cover all IT companies with market cap more than Rs. 1000 crore, or to only invest in FMCG (Fast moving consumer goods) companies, etc. Whatever strategy the NFO is going to apply, you must assess it based on your requirements and risk factor. So for example, if you feel that in upcoming years, IT companies are going to out perform the remaining sectors, and at this point of time, you see the NFO that will be investing in IT companies, than you can fill this gap in your portfolio and invest in this NFO.

Similarly you should avid the NFO if you see anything negative about the strategy used.

Fund House Reputation

It is important to note that the fund house offering NFO must be a reputable fund house with at least 5 years to 10 years of experience in handling mutual funds. You don’t want to invest in a new fund house offering NFO without any track record. You can compare the fund house’s existing mutual funds and see how the fund house is providing returns with their existing mutual funds to get an idea whether investing in new NFO will be a good or bad idea with this fund house.

Returns

Since we do not have any track record of the NFO offered by fund house, we cannot see past returns. But you can know the NFO strategy and check for returns from the equity and debt instruments, to get an idea about how these products are providing returns. However, past returns does not guarantee future returns, but it is one of the important factors you should be considering.

Theme of New Fund Offer

Theme of the NFO or strategy applied is important to know for you as an investor, because based on this theme you will decide whether to invest in this NFO or not. If your investment portfolio gap is filled with this new theme of investments offered by NFO, then you should invest and if not than you can ignore.

Cost of Investment

You should also check the cost of investments, such as annual charges, expense ratio after getting listed in the open market. These factors will impact your overall returns you get while redeeming the mutual fund units.

ALSO READ: How to Invest in Mutual Fund SIP Online

Risk Factor

Risk factor need to be checked while you are subscribing to NFO. Whether the mentioned risk is aligned with your investments and risk appetite.

Investment Horizon

Some NFO keeps you invested for a certain lock in period, during which you cannot redeem the fund units, and in closed ended funds which have maturity period, you cannot redeem the mutual fund units until specific time. You should be knowing the lock in period of such NFO and invest in such mutual funds accordingly based on your requirements.

Minimum Subscription Amount

Usually the minimum subscription amount can range between Rs. 500 to Rs. 5000 while investing in NFO. So accordingly you need to decide how many units of NFO you want to buy initially. If you cannot afford their minimum subscription criteria, it is better to start SIP in any existing mutual fund with the amount aligned with your investment journey.

Conclusion

So NFO in mutual fund or new fund offer is the offering provided by fund house to raise capital in order to invest in securities and debt instruments that will fill the gap in the mutual fund industry.

You as an investor can see this as an opportunity by just buying mutual fund units at the base price of Rs. 10, the value of which will increase with time after the NFO gets listed for buying and selling in mutual fund market.

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Frequently Asked Questions

What is the value of NFO?

Initially the subscription value of NFO in mutual fund is kept as Rs. 10 per unit. So you can buy them based on the minimum subscription condition set by the fund house.

How do I trade in NFO?

Like other mutual funds, you need to log in to the mutual fund company website or online broker, select the NFO you want to invest in and make payment based on the minimum subscription amount set by fund house

Is NFO better than SIP?

SIP is a way to invest in mutual fund every month, where as NFO is new fund offer where the fund house provides you the opportunity to invest in new mutual fund with specific theme or strategy, so these are the differences. You can invest via SIP (Systematic Investment Plan) in mutual funds

Can I start SIP in NFO?

Yes some NFO allows to start SIP. When the mutual fund is available in open market, you can continue SIP investments in this mutual fund.

Why do people invest in NFO?

NFO provides an opportunity to fill the gap in current market and investment journey of investors. Seeing this opportunity, the investors invests in NFO and expect better returns from this new fund offering once they get listed in mutual fund market for buying and selling purpose

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NFO in Mutual Fund – New Fund Offer

What is NFO in Mutual Fund?

How NFO in Mutual Fund works?

Is NFO in Mutual Fund a good investment?

Who opt to invest in NFO?