All About NFO: Beginner’s guide to investing.

What is a New Fund Offer (NFO)?

A New Fund Offer (NFO) is the first subscription offering of a new mutual fund scheme by an Asset Management Company (AMC). An NFO in mutual funds is essentially the initial sale of mutual fund units at a face value. An NFO enables the AMC to raise capital for purchasing securities.

Different types of NFOs in mutual funds

There are two types of NFOs in mutual funds:

• Open-ended Mutual Funds: These are mutual fund schemes for which the AMC floats new scheme for subscription during the NFO period. These schemes can also be bought on an ongoing basis after the scheme is open for subscription and redemption. The fund house can offer NFOs for new schemes. You can buy and sell them on their launch date and thereafter once it is open on an ongoing basis.
• Close-ended Mutual Funds: The fund house issues units which are available only during the NFO. You can only buy them when they are launched before the closing of the launch period. Once the NFO period is over, no fresh units are issued in such funds.

How to invest in NFOs?

There are two modes for investing in an NFO of a mutual fund: online and offline. You can go for the option that best suits your needs.

• Investing in NFOs – Offline Mode: You can invest in NFOs by meeting distributors or brokers in person. All you need to do is fill out the required forms and sign the necessary documents to invest in a New Fund Offer.
• Investing in NFOs – Online Mode: Investing in NFOs has never been easier as now you can invest through your Demat and online trading account. Another option is to go to any established mutual fund platform and create an online account to invest in NFOs right from the comfort of your home. The only thing you need to do is login and place an order for your chosen NFO of a mutual fund.

Things to know before you invest in NFOs

If you have always been interested in investing in mutual funds, you may want to jump at the next NFO you see. However, you must exercise some caution and invest in NFOs only after understanding these things:

• Overall cost of investment: In many cases, AMCs offer units at Rs.10 in NFOs. It may seem like a cheap ticket to wealth at first. However, there is a minimum subscription amount, and you are supposed to buy a stipulated number of units to participate in the NFO. Also, the face value can be either Rs.10 or Rs.100 or Rs.1000, but you can make money only if the underlying securities perform. Accordingly, market risk ought to be considered prior to investing in NFO.
• Investment objective: Though NFOs have a low face value, it doesn't necessarily guarantee a sustained performance as compared to other funds. Thus, it becomes crucial that you analyse the scheme before making the investment decision. You must check if the NFO is offering an investment objective that suits your financial goals and risk appetite. You can also consider seeking the help of a financial expert to make an informed decision.
• Close or open-ended fund: Check whether the fund is close-ended or open-ended. In case of open-ended fund, you can enter and exit the fund at any time, whereas in case of close-ended funds, your exit options may be limited.

New Fund Offers (NFOs) give you the opportunity to get a head start in a mutual fund scheme since you are amongst the early investors in the scheme. However, you must look at the overall performance of the AMC, fund manager and the performance of similar schemes in the market to make an educated guess about the performance of an NFO of a mutual fund.

FAQs:

Is it safe to invest in NFO?

Just like any other investment option, investing in an NFO, carries inherent risks. The performance of an NFO depends on factors such as the quality of the fund's investment strategy, the experience of the fund manager, the underlying assets in the portfolio, and market conditions. Thus, it is important to carefully evaluate these factors before investing in an NFO. You can consider seeking the help of financial advisor to make an informed decision.

How does an NFO differ from an IPO?

An NFO involves the issuance of units of a mutual fund scheme, while an IPO involves the issuance of shares of a company. There is no IPO in case of a mutual fund scheme.

What are the benefits of investing in an NFO?

NFO can provide exposure to unique investment strategies or asset classes that may not be available in other existing funds.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.

This document should not be treated as endorsement of the views/opinions or as an investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.