What is an NFO? How to Invest in NFOs? Factors to consider before investing in NFOs.

A New Fund Offer (NFO) works on the principles of Initial Public Offerings (IPO). Mutual fund companies issue the NFOs.

What is an NFO How to Invest in NFOs

The abbreviation NFO stands for "New Fund Offer." It's similar to an initial public offering (IPO) but with some differences. In an initial public offering (IPO), new shares are launched on the stock market for the first time for investment. In contrast, a new fund offer is a mutual fund released to investors by a mutual fund company for the first time. The NFO remains open for a set period. In mutual funds, the NFO price is usually fixed at Rs. 10 per unit. Investors can purchase mutual funds on the open market after they have been listed. NFOs are generally offered at a higher price once they get listed.

Also read- Got questions about New Fund Offer(NFO)? Here are the answers

Types of NFO

Open-Ended Funds

All investors can invest in open-ended funds. Investors and NFO subscribers in this category can sell or redeem their mutual fund units at any time. This sort of fund is subject to exit load. There is no lock-in period.

• Close-Ended Funds

Close-ended funds have a defined term of three to five years. Investors cannot withdraw from a close-ended fund before the stated lock-in period expires. Close-ended mutual funds, to put it simply, have a set tenure and maturity term.

How to invest in NFOs?

You can invest in NFOs in two ways: online and offline. You can select any of these two methods according to your convenience.

Offline mode- Investment in NFOs through a broker.

  • Contact an authorised broker.
  • The broker will assist you in choosing a New Fund Offer.
  • Fill up an NFO application form and follow the instructions.
  • You can contact your broker at any moment to enquire about your fund's performance.

Online Mode- Through an online trading account.

  • To access your Online Trading Account, you must first log in or register.
  • Check out the details of various NFOs on the internet, starting with the fund house and asset allocation.
  • Choose the best one to put your money into.
  • Enter the amount you want to invest and whether you want to pay in one lump sum or over time.

What should you think about before investing in NFOs?

1. Reputation of the fund house

You must conduct a comprehensive background check on the fund house you are investing in before parking funds in an NFO. An AMC's track record can significantly impact how well a newly launched NFO performs. You should look at if the fund house has a solid track record in the mutual fund business. It is vital to learn how the fund firm has performed in the past during market ups and downs. Similarly, you should look into the background of the portfolio managers who are now handling your MF scheme.

2. Objectives of the Fund

When considering investing in any upcoming NFO, it's a good idea to familiarise yourself with the fund's goals. You'll learn about your scheme's risk factors, asset allocation, expected returns, liquidity, etc. Since NFOs don't have a track record, the investment procedure is spelt out in detail in their scheme-related paperwork. The offer document clarifies what the fund manager intends to do with your money.

3. NFOs as a theme

A large variety of mutual fund schemes are available on the market. As a result, especially when investing in an NFO, you must study the fine print to determine the fund's theme. The investing theme of the scheme should be distinct from that of existing mutual funds while yet being long-term enough to generate returns.

4. Minimum investment and investment horizon

NFOs normally have a minimum subscription fee that ranges from Rs. 500 to Rs. 5000. This means that you may be asked to put down a certain amount of money while investing. You can choose a systematic investment plan if you're investing in an open-ended NFO (SIP).

Similarly, NFOs can have lock-in durations ranging from three to five years. You'll put your money in this account for the stated amount of time. It's a good idea to invest if the term matches your investing horizon.

Also Read- How IPOs differ from NFOs?

In a Nutshell

A corporation uses a new fund offer to raise funds from public investors to purchase securities. Examples of such securities include shares, capital assets, bonds, and other assets for a new fund.

Mutual funds use NFOs to allow investors to invest for the first time in the company. The AMCs keep the new fund offers open for a set length of time, during which investors can purchase fund units. Hence, investors get the opportunity to invest in the fund at an early stage and gain profit from the fund's Net Asset Value (NAV) fluctuation.

 

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