New Fund Offerings (NFO) refers to the first offering by an investment company for a new fund. NFOs are launched by an asset management company or to say mutual fund houses that are looking to launch a new fund in the market and thus raise capital. It is just like an IPO (Initial Public Offering), but for funds.
An NFO allows you to purchase the funds at an offer price that usually amounts to Rs.10 per unit. An NFO can remain active for a tenure of 30 days as per SEBI regulation. After which any trade on these funds are done on the basis of its NAV (Net Asset Value). The collected revenue is utilised in procuring securities of various publicly traded companies listed in a stock exchange.
Types of NFO
There are two main types of new fund offerings, namely – Open ended fund offering and Close ended fund offering.
1. Open ended funds
These funds can be bought and sold from brokerage firm at any point of time after the launch date.Open-end funds do not limit their number of shares.The shares do not trade on an exchange and are managed by the fund company.
2. Closed ended funds
These fund offerings do not allow the entry and exit of investors after the NFO period, until its maturity. Usually, the maturity period for such offerings is approximately three to four years. Liquidity of such funds on the market tends to be low.
Why invest in an NFO?
1. Attractive offer price
By subscribing to NFO, you get access to a new fund at a nominal cost.
NFO is cheaper than the existing funds as it is new to the market.
2. Option to new exposure
By investing in an NFO, you get an opportunity to invest in a new asset class/index/commodity via the novel underlying securities which the NFO aims to hold.
3. Diversify portfolio
NFO can help to diversify their portfolios while also making sure that the overall portfolio risk does not sway beyond tolerable limits.
Things to consider before investing in NFOs
- You might want to keep yourself thoroughly informed regarding the background of the investment company.
- Also, it is always advisable to thoroughly review the documents which consist of the information regarding the offer.
- Remember to gauge the scheme’s structure and the risks involved before investing.
- You must be careful of the time period for which you want to keep your funds locked in and invest accordingly for the NFOs that come with a lock-in period.
How to invest?
- To invest in an NFO, you can consult an authorized broker, who will not only ease the process of application and other formalities but also assist you by providing advice in terms of future performances of your fund and market updates.
- You can also use your online trading account to register for an NFO. As an added advantage, the online trading account also lets keep a tab of your NAVs on all your mutual fund investments.
Always remember, Investing is all about picking the right funds at the right time.