The NFO stands for a New Fund Offer. In an NFO, an Asset Management Company (AMC) or the mutual fund house offers units of a new fund to the public for the very first time. It provides you an opportunity to become early participants in a fund's growth potential, often at a low initial price. NFOs typically come with a specific investment objective, strategy, and asset allocation. This makes a new NFO an attractive investment option for those who seek to diversify their investment portfolio or capitalize on emerging market trends.
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The full form of NFO is a New Fund Offer. It is the initial sale of units of a mutual fund scheme to the public. It is the first subscription offering launched by an Asset Management Company (AMC) for any of the following funds:
ULIP Fund (Unit Linked Insurance Plan)
Mutual Fund Scheme
During an NFO, you can buy units of the fund at its inception. This allows you to become an early investor in the scheme.
NFOs are typically launched for a specific investment objective, such as investing in a particular sector, market capitalization, or asset class.
Investing in an NFO from its inception offers you the following benefits:
Invest at a Lower Initial Price: NFOs are typically launched at a Net Asset Value (NAV) of Rs. 10 per unit. This gives you the opportunity to invest in a new scheme at a lower initial price.
Growth Potential with Early Entry: NFOs provide a chance to get in on a mutual fund scheme from the beginning, potentially benefiting from its growth right from the start.
Invest in a New Investment Theme: NFOs are often launched to invest in new or emerging investment themes. This gives you the opportunity to invest in these themes at an early stage, which has the potential to generate higher returns in the long term.
Asset Diversification: They offer an opportunity to diversify your investment portfolio with a new asset class or investment style.
Unique Investment Strategies: NFOs may introduce innovative or specialised investment strategies not available in existing funds.
ULIP fund plans offer you tax benefits under Section 80C and Section 10(10D) of the Income Tax Act of 1961.
Mutual fund investments offer tax-free returns on investments up to Rs. 1 lakh per year on long-term capital gains.
Potential for Outperformance: A well-managed NFO has the potential to deliver strong returns over time, similar to established funds.
There are mainly two types of New Fund Offers (NFOs) based on Fund Structure, they are as follows:
Allows you to buy and sell units at any time, offering liquidity
No fixed maturity period
The NAV is calculated and declared daily
High liquidity and flexibility
Provides continuous availability for investment
Most common and suitable for long-term investors
Has a fixed maturity date and limited liquidity during the lock-in period
The lock-in period is generally 3 – 5 years
Once the NFO period is closed, investors cannot buy new units
You can't redeem units before maturity
Units can be sold only on the stock exchange after the fund is listed
Limited liquidity but can offer unique opportunities
However, you can also categorise a new NFO based on the following criteria:
|Type of NFOs||Description|
|Based on Asset Classes:|
|Based on Sector/ Theme Focus:|
|Based on Investment Objective:|
|Based on Geographic Focus:|
|International or Global NFOs||
|Based on Fund Manager’s Approach:|
|Index NFO or Passive NFOs
|Based on Taxation:|
|Tax-saving NFOs (ELSS)||
Each type of NFO serves different investment objectives and risk appetites, allowing you to choose funds that align with your financial goals and risk tolerance.
*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
Let us learn the workings of a new NFO (New Fund Offer) from the list mentioned below:
Idea and Planning- The insurance company or mutual fund company decides to create a new fund based on a specific investment goal, like stocks, bonds, or a mix of both.
Regulatory Approval- They need approval from the market regulator, i.e. the Stock Exchange Board of India (SEBI), to offer this fund.
Pre-launch Period- Before it is available to the public, the fund is in a pre-launch phase. During this time, you can buy units at a fixed price, usually at Rs. 10 per unit in India. This phase can last a few days to a few weeks.
Subscription Period- Once the NFO is officially launched, you can buy units at the current Net Asset Value (NAV), which fluctuates like a stock price. The subscription period continues for a few weeks.
Fund Management- The fund manager uses the money collected during the NFO to invest in accordance with the fund's objectives.
Listing- After the subscription period ends, the NFO units are listed on stock exchanges (if it's an exchange-traded fund) or can be bought directly from the mutual fund company.
Regular Trading- After listing, NFO units can be bought and sold like any other mutual fund units, based on their NAV.
You can follow the steps mentioned below to invest in an NFO:
Step 1: Choose an NFO:
There are many different NFOs launched every year, so it is important to do your research and choose an NFO that is aligned with your investment goals and risk tolerance.
Step 2: Open an Investment Account:
If you do not already have an investment account, you will need to open one with a broker or mutual fund distributor.
Step 3: Apply for the NFO:
Once you have opened an investment account, you can apply for the NFO through your broker or mutual fund distributor. You will need to provide your personal details and investment amount.
Step 4: Make the Payment:
Once your application is approved, you will need to make the payment for the NFO. This can be done through online transfer, cheque, or demand draft.
Step 5: Receive Your Units:
Once the NFO is closed, the AMC will allot units to you on a first-come, first-served basis. You will receive your units in your investment account.
You can consider the following factors to choose the best NFO (New Fund Offering) for investment:
Objective Assessment: Understand your investment goals if you are looking for long-term growth, income, or a balanced approach.
Research the Fund: Analyse the NFO's investment strategy, portfolio, and past performance (if available). Check if it aligns with your goals.
Risk Tolerance: Assess your risk tolerance. New NFOs can vary in risk levels. Pick one that matches your comfort level.
Fund Manager: Research the fund manager's experience and track record. A skilled manager can significantly impact returns.
Expense Ratio: Lower expense ratios mean more of your money goes into investments. Choose a new NFO with a reasonable expense ratio.
Exit Load: Check if the NFO has an exit load, which is a fee for early withdrawals. Avoid high exit loads if you may need to access your money sooner.
Asset Diversification: Look for diversification within the NFO's portfolio to spread risk.
Fund House Reputation: Consider the reputation and credibility of the fund house managing the NFO.
Read the Offer Document: Go through the NFO's offer document for complete details and disclosures.
Invest for the Long Term: NFOs may take time to mature. Be prepared for a long-term commitment.
Monitor Your Investment: Once invested, keep an eye on your NFO's performance and make adjustments as needed.
New Fund Offerings (NFOs) offer you a unique opportunity to get in on the ground floor of a new investment fund. These financial products can cater to various investment objectives and risk profiles. However, it is essential to conduct thorough research, assess your financial goals, and consider the fund's strategy and track record before investing in an NFO. With careful analysis and informed decision-making, NFOs can be a valuable addition to your investment portfolio.
During the NFO period, you can subscribe to units of the new fund at a fixed price, typically Rs. 10 per unit. After the NFO period ends, the fund is officially launched, and you can buy or sell units at the Net Asset Value (NAV) on stock exchanges.
Visit the websites of Asset Management Companies (AMCs)
Read financial newspapers and magazines
Follow financial websites and blogs
Sign up for email alerts from AMCs, online investment platforms, and financial websites
*All savings are provided by the insurer as per the IRDAI approved insurance
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
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