How to invest in New Fund Offer (NFO)?

Many investors try to capitalize when the markets are at peak intending to get better returns from the market. However, some investors prefer lucrative fund investments at a cheap rate. The asset management companies try to seek this as an opportunity by releasing a New Fund Offer (NFO). In this article, let’s get to know about NFO and how you can invest in it.

What is New Fund Offer (NFO)

Just like an initial public offering (IPO), an asset management company raises capital from the public by launching a New Fund Offer (NFO). Many asset management companies release New Fund offer or NFO, which is a subscription offer before a scheme is launched. The offer is released for a limited time, during which investors get the opportunity to decide whether they want to invest in the scheme. AMCs release NFO usually for Rs.10. It is during the pre-defined period; investors can subscribe to the offer and be eligible to invest in the scheme.

Key Features of New Fund Offer (NFO)

Once the subscription period is over, investors are entitled to purchase the fund units at the specified price. Some of the key highlights of NFO:

  • The NFO is used by AMCs to raise capital from the public to buy securities, bonds, shares, and so on

  • The offer is cheap as compared to existing fund options

  • NFO provides better gains after listing

Types of New Fund Offer

Before investing in the new mutual fund offer, you must know that there are two types of NFOs – Close-ended Funds and Open-ended Funds.

  • Close-ended funds – This type of funds have fixed units when a New Fund Offer is released. Here only specific number of funds units are offered in the portfolio. Right from the start till the end of the scheme, no new investor can enter, and even existing investor is not allowed to exit during the subscription period. The time period for this type of NFO is 3-4 years. Investors can sell or buy a mutual fund through market exchange.

  • Open-ended funds – This type of funds is launched when the NFO term period ends. Under this, investors can subscribe to the NFO even before its NAV is determined. This helps investors to gain profits in the long run. The purchase and sale of units of NFO bring down the value of the fund.

Both types of funds enable investors to earn capital and dividend returns.

Advantages of Close-ended Funds vs Open-ended Funds:

  • The close-ended funds offer an extended time period (3-4 years) which saves investors from bad investment behaviour.

  • The NFO of close-ended funds gives you the flexibility of investing your money in the market.

  • The open-ended funds are likely to have sudden outflow, which could make fund manager to sell them at low prices. On the contrary, close-ended funds allow managers to make sound investment decisions on stock selection and tracking performance

  • Unlike open-ended funds, close-ended funds allow you to invest in new strategies

How to invest in NFO?

There are two ways to invest in NFO – Online and Offline. You can choose any mode, depending on your convenience.

Offline mode – Investment in NFO through a broker

  • Reach out to an Authorized Broker

  • The broker will help you select a New Fund Offer

  • Fill an application form of NFO & complete the formalities

  • You can get in touch with your broker anytime to know fund’s performance

Online mode – Investment in NFO through Online Trading Account

  • Login/ register to your Online Trading Account

  • Check the details of various NFO online – right from fund house, asset allocation

  • Choose the best one to invest

  • Enter the investment amount – whether you want to go for Lump sum payment or SIP

Bottomline on Investing in NFO

Are you ready to invest in new mutual fund offer? Make sure you contact a reputed fund house, know the risk factors, minimum subscription amount, analyse past returns, and your investment time period. NFO is the best option if you have comprehensive knowledge about it so as it helps you to grow your wealth. We advise you to know the terms and conditions before investing in New Fund Offer.