NFO: New Fund Offer of Mutual Funds
NFO or New Fund Offer is very much unknown to many people. People who are interested in mutual funds should know about NFOs. This post discusses NFOs in detail.
What is NFO?
NFO or New Fund offer is a scheme of fund houses or investment companies. When an investment company or a fund house set to release a new mutual fund, it first offers this mutual fund for subscription by the general public at a discounted price before listing. The price of a mutual fund is termed as Net Asset Value (NAV) of one unit. This subscription remains open for a limited period of time and available at a discounted price. Usually, this discounted price is Rs 10 per unit but it varies from offer to offer.
NFO is similar to Initial Public Offering (IPO) of equity share of a company. They both are offered for the subscription before listing. Companies or fund houses do this for fund-raising for further operations. They generally use this raised money to purchase securities like equity shares, bonds etc. The NFO usually gains significantly after its listing.
(Read: IPO process in India Steps)
Type of NFO
There are two types of NFOs:-
- Open-Ended: In this type of NFO, an unlimited number of shares can be bought on its launching day. It can be traded with a stock-broker because they are not traded on an exchange. The NAV of these funds is updated after the closing of the market. One can exit at any time from this scheme as they do not have any fixed tenure. Most of the mutual funds are open-ended.
- Closed-Ended: One can buy a limited number of shares for a fixed duration. They are traded on an exchange and its NAV is updated throughout the trading day.
Features of NFO
NFOs have the following important features:-
- Fund House: The investment company which is launching the mutual fund.
- Fund Objectives: Allocation of its assets.
- Theme: Equity, or Debt, or Hybrid, Tax related schemes.
- Return: Expected rate of return from the investment.
- Minimum Subscription Amount: Every NFO has a minimum subscription amount. It may range from 500 to 5000.
- Investment Horizon: SIP, Lump-Sum, Lock-In period.
How to Invest in NFO?
To invest in NFOs, you may follow the following two ways:-
- Contact a registered investment adviser.
- Read the related document of the fund house carefully and follow the steps.
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