NFO Meaning – Everything About NFO Mutual Funds
NFO is an abbreviation of New Fund Offer. From the word itself, it is clearly stating what NFO meaning implies that these are funds which are launched by the Asset Management Company (AMC) for first time subscription of a new scheme. NFO is launched to raise capital from the public in order to purchase securities like shares, government bonds in the market.
NFO mutual fund meaning:
NFO mutual fund is when a new mutual fund gets launched and is offered to the public before the daily transactions are opened. NFO mutual funds are one of the most common offering by an investment company; the initial purchasing offer varies by fund’s structure.
When the fund house launches a new MF scheme it is named as New Fund Offer (NFO). It works like a first come and first served basis for the general public to subscribe.
Investing in NFO is an easy task. The investor needs to complete the KYC first and then login to his/her account and check for the suitable plans as per your investment objective.
NFO helps the companies to meet their goals whereas investors find it to be a value for money proposition therefore subscribe to it.
While you invest in NFO, following points are to be kept in mind:
- Knowledge about the fund house you are investing
- Asset allocation
- Risk involvement
- Return expected
- As NFO comes without any established track record which brings level of uncertainty
- Go through the offer documents and investment process carefully which the fund manager will be following
- Keep a figure of the expected returns and accordingly analyze your funds
- Check the minimum subscription amount for an NFO as it is the deciding factor for funds to invest in. Generally, it starts with Rs. 500- Rs. 5000
- Check the lock-in period before investing
Mutual fund investments are highly regulated by SEBI in order to safeguard the rights of the investors. For this purpose, SEBI requires the fund to provide with two documents:
- Offer document or prospectus
- Shareholders report which is otherwise called as factsheet
Why to invest in New Fund Offer Mutual Fund?
- Freedom from large flows
- Lock-in support
- Flexibility in terms of when to invest the money in market
- Gives option to choose new strategies
Types of New Fund Offer:
- Open ended funds: These funds are officially launched after the new fund offer ends, the investors can enter and exit at any time after the launch
- Closed ended funds: These funds do not allow the investors to enter or exit after NFO period until the fund’s maturity, the time period in closed ended funds are typically 3-4 years from the launch date.
How does New Fund Offer Mutual Fund work?
In NFO the opportunity to subscribe for the scheme is only available for limited period. During this period, the investors may purchase mutual fund scheme units to subscribe at an offer price, this is usually fixed at Rs. 10. When the tenure expires, the investors can purchase the units of funds at the offer prevailing at the time.
How NFO is a good opportunity for an investor?
NFO helps the fund houses to raise money from the public to buy securities like equity shares, bonds, etc. from the market. It is cheaper than existing funds because it is new to the market. An NFO works similar to an IPO. As a company goes for an IPO to conduct business, in the same way mutual fund issues NFO to raise funds to invest in stocks, bonds, commodities or various other asset classes.
How NFO differs from IPO?
The major difference between NFO and IPO is that IPOs are often issued by the companies in order to seek capital whereas, NFO from a fund house just pools in money from the investors and invests that amount in a set of securities based on the strategies stated. Also, IPOs are priced at a premium to the face value whereas, an NFO is always available at Rs. 10 per unit.
Who opts to invest in NFO mutual fund?
Mostly investor seeks MF investment opportunity when the market is at peak. Also, they prefer lucrative investments which are available to them at a cheaper rate. The AMC tries to capitalize on the psyche of the investors resulting investors to go after cheaper NFOs.
Things to be considered as an investor:
- Fund house reputation
- Fund objective
- Theme of NFO
- Risk factor
- Cost of investment
- Minimum subscription amount
- Investment horizon
Hope the above NFO meaning and description helpful for you. As an investor you should try NFO mutual fund with limited overlap so that it provides you the benefit of diversification. Evaluate each NFO to check whether it is worthy for your portfolio or not.