Everything You Need to Know About New Fund Offer (NFO)

Investors have a good view of trying and discovering new financial products as financial products have evolved. The New Fund Offer is one such financial advancement in the mutual fund sector (NFO). The asset management firm, as the name implies, is launching this fund for the first time in the market. As a result, NFOs are available in a variety of fund types, intending to build long-term wealth for investors.

This article will give you an overview of the New Fund Offer, including its definition, categories, and many more.

What is New Fund Offer (NFO) in a mutual fund?

A New Fund Offer is when an Asset Management Company introduces a new mutual fund plan (AMC). The AMC announces a New Fund Offer (NFO) to raise funds for securities purchases. Furthermore, mutual fund NFOs function similarly to initial public offerings (IPOs) (IPO). The portfolio’s details, such as the firm shares to be purchased, the type of assets to be purchased, the fund manager, and so on, are also included in the new fund offer document.

Within a certain time frame, an investor can subscribe to an NFO. They can buy the units for the same price as a membership. Normally, the promotional price is Rs.10. Investors can also acquire the fund at market pricing after the promotional period has ended. The Net Asset Value (NAV) is the market price at which mutual funds are traded (NAV). New fund offerings are used to launch both open-ended and closed-ended funds.

Types of New Fund Offer (NFO)

The categories of New Fund Offers are as follows.

Close Ended Funds

During the new fund offer, the close-ended funds have just fixed units. Closed-ended funds have a limited number of units available. These funds are only available for purchase during the NFO period.

Investors, on the other hand, will not be able to purchase units after the NFO has ended. Existing investors are also unable to withdraw funds until the fund reaches maturity. As a result, the mutual fund institution registers the closed-ended scheme on a stock market where investors can purchase and sell units to assure liquidity.

Demand and supply have an impact on the fund’s actual price or NAV. As a result, these funds can trade at a premium or a discount to their net asset value (NAV). Furthermore, when closed-ended funds are exchanged on stock exchanges, the number of outstanding units does not vary.

Open-ended Funds

Every mutual fund is started through a new fund offer, as previously stated. When the NFO expires, however, the fund is relaunched as an open-ended fund. Open-ended mutual funds are the most frequent type of mutual fund. Additionally, the NFO allows investors to purchase mutual fund units before the NAV is set. The number of units that the fund can issue is unlimited. A mutual fund that is open-ended permits investors to enter and quit the fund at any time.

In addition, once the mutual fund begins operations following the NFO, investors must pay the current market NAV for each fund unit.

As a result, investors can select between an open-ended and a closed-ended mutual fund NFO. Based on the type of investment programme, both funds are likely to generate capital gains and dividend yields. In most cases, the fund manager actively manages open-ended funds. Closed-ended funds, on the other hand, are managed passively.

Who should opt for an NFO?

When the market reaches new highs, most investors hunt for investing opportunities. Investors want to get into the market, whether it’s gold, real estate, or the stock market because they believe it will continue to climb. Investors are also eager to put their money into anything that appears to be a profitable possibility. As a result, people pick investments that are less expensive.

AMCs strive to take advantage of this investor mentality in the majority of circumstances. They offer a discount on the NFO to attract investors, which usually works. As a result, investors perceive this as a great opportunity to buy. NFOs are also seen as good value for money by investors, who subscribe to them. In addition, mutual fund houses can meet their goal of increasing assets under management (AUM).

Investing in NFOs also provides portfolio managers and investors with more flexibility. When markets are at their height, especially for closed-end funds, the fund manager can hold a portion of the investors’ funds to invest later.

However, because it is investors’ hard-earned money, a comprehensive investigation is required before going with their investment funds.