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What is NFO?


A new fund offer or NFO of mutual funds is a first-time subscription offer for a new scheme launched by an asset management company. The new fund offering by a mutual fund house can be launched around a theme or simply to complete their product basket offering. Please note that a mutual fund company can have only one scheme under a category or theme. After the new fund offering, provided it is an open ended scheme, is over, the fund will reopen for subscription again and investors can invest in the same at the prevailing net asset value (NAV).

If the NFO is a closed ended scheme, the fund will not open for subscription again. Mutual fund investor who subscribe to new fund offering of a close ended mutual fund scheme has to remain invested in the fund till the scheme maturity date.

Generally units are offered at Rs 10 during the NFO period.

Investors should consider the following before investing in a mutual fund NFO –

Reputation of AMC – How long the AMC is in existence is most important as you know the track record of the AMC.

Scheme objective – Do not rush to invest in a NFO unless the objective of the scheme matches with your investment objective and investment time horizon.

Risk Factor – Read the risk factor and check if it matches with your risk profile.

Expense ratio – You must check the scheme expense ratio as lower the expenses, higher would be the returns.

Benefits of Investing in NFO?

An investment in new fund offering in a mutual fund can help you invest in new themes and sectors, diversifying your portfolio, invest in reputed AMCs in which you may not have any exposure and invest in close ended funds and get locked for the long term, etc. Let us check some of the benefits –

Invest in new ideas – Through a mutual fund new fund offering you may come across interesting ideas/ themes which is completely new and you may like to invest in it.

Diversify your portfolio – You may like to invest in a NFO launched by a reputed mutual fund house but you have neither invested in a scheme of that category and / or have no exposure in the said fund house.

NFO by a new reputed AMC – You may like to invest in a NFO which is launched by a new fund house with a good pedigree and you would like to test the fund manager’s skill set by investing in the new scheme.

Lock investments for a long term – If the NFO is a close ended fund, you may like to invest in it, provided it matches with your risk profile and investment time horizon, for the long term. The reason is that the investments are locked-in and you will not be able to redeem it even if you are tempted to. In other words, remaining to invest for the long term gets you good return over the years.

There are some differences in NFO(New Fund Offer) and post NFO investments of normal Mutual Fund schemes and different types of Exchange Traded Funds.


NFOMutual Fund (All schemes except ETF)ETF (Equity)ETF (Debt)ETF (Commodity)
Minimum InvestmentAs per SID (Scheme Information Document)As per SIDAs per SIDAs per SID
Offer of UnitsFace ValueCertain % of the underlying index (e.g. price of one Mirae Asset Nifty 50 ETF unit is approx 1% of Nifty 50 TRI, subject to TERFace ValueCertain grams of the commodity (e.g. price of one Mirae Asset Gold ETF unit is approx 0.01 grams of Gold, subject to TER)
Units AllotmentUnits allotted = Investment amount ÷ Face Value (subject to deduction of applicable stamp duty & transaction charges if anyBased on investment amount and prevailing benchmark price / value(subject to deduction of applicable stamp duty & transaction charges if anyBased on investment amount and Face Value(subject to deduction of applicable stamp duty & transaction charges if any)Based on investment amount and prevailing commodity price(subject to deduction of applicable stamp duty & transaction charges if any
Scheme OptionsInvestors can choose Growth or IDCW (Income Distribution cum Capital Withdrawal) (refer to the SID) at the time of NFONot applicableNot applicable (IDCW if any, then it is reinvested in its scheme)Not applicable
Scheme PlansInvestors can choose Regular (through distributor) or Direct {with AMC or through RIA (Registered Investment Advisor)} at the time of NFONot applicableNot applicableNot applicable
SIPYes (refer to SID for minimum SIP amount)Not applicableNot applicableNot applicable
Switch from other schemesYes (refer to SID)Yes (refer to SID)Yes (refer to SID)Yes (refer to SID)
Demat account requiredNot mandatoryNot mandatoryNot mandatoryNot mandatory
Post NFO
Additional Purchase Minimum Investment AmountAs per SID from the AMC (Asset Management Company)Investors can buy 1 unit or more on stock exchange. Large investors can subscribe/redeem directly with the AMC for an amount greater than 25 croreInvestors can buy 1 unit or more on stock exchange. Large investors can subscribe/redeem directly with the AMC for an amount greater than 25 croreInvestors can buy 1 unit or more on stock exchange. Large investors can subscribe/redeem directly with the AMC for an amount greater than 25 crore
Ongoing price for subscription (This is the price you need to pay for purchase/switch-in)In respect of valid applications received upto 3.00 p.m. at the Official Point(s) of Acceptance and where the funds for the entire amount of subscription / purchase/switch-ins as per the application are credited to the bank account of the Scheme before the cut-off time i.e. available for utilization before the cut-off time- the closing NAV of the day shall be applicable.Current market (bid / ask) price if buying in stock exchanges and based on prevailing NAVs if buying from the AMC (buying in lot sizes creation units)Current market (bid / ask) price if buying in stock exchanges and based on prevailing NAVs if buying from the AMC (buying in lot sizes creation units)Current market (bid / ask) price if buying in stock exchanges and based on prevailing NAVs if buying from the AMC (buying in lot sizes creation units)
Ongoing price for redemption (sale) / switch outs (to other schemes/plans of the Mutual Fund) by investors. (This is the price you will receive for redemptions/switch outs.In respect of valid application accepted at an Official Points of Acceptance up to 3 p.m. on a Business Day by the Fund, the closing NAV of that day will be applicable, subject to prevailing exit load, if any.Investors can sell their units on the stock exchange. Large Investors can also redeem their units with the AMC if they are transacting in lot sizes (refer to the SID)Investors can sell their units on the stock exchange. Large Investors can also redeem their units with the AMC if they are transacting in lot sizes (refer to the SID)Investors can sell their units on the stock exchange. Large Investors can also redeem their units with the AMC if they are transacting in lot sizes (refer to the SID)
Ongoing price for redemption by investors.(This is the price you will receive for redemptionsAt the applicable NAV subject to prevailing exit load, if any.Investors can redeem (sell) Units on a continuous basis on the NSE/ BSE on which the Units are listed. On the Stock Exchange(s), the Units can be sold in minimum lot of 1 (one) Unit and in multiples thereof. The Scheme offers for redemptions only for Market Makers in ‘Creation Unit Size’ on all Business Days at a price determined on the basis of approximately indicative NAV based prices (along with applicable charges and execution variations) during the Ongoing Offer for applications directly received at AMC. Large investors can redeem directly with the AMC for an amount greater than 25 crores.Investors can redeem (sell) Units on a continuous basis on the NSE/ BSE on which the Units are listed. On the Stock Exchange(s), the Units can be sold in minimum lot of 1 (one) Unit and in multiples thereof. The Scheme offers for redemptions only for Market Makers in ‘Creation Unit Size’ on all Business Days at a price determined on the basis of approximately indicative NAV based prices (along with applicable charges and execution variations) during the Ongoing Offer for applications directly received at AMC. Large investors can redeem directly with the AMC for an amount greater than 25 crores.Investors can redeem (sell) Units on a continuous basis on the NSE/ BSE on which the Units are listed. On the Stock Exchange(s), the Units can be sold in minimum lot of 1 (one) Unit and in multiples thereof. The Scheme offers for redemptions only for Market Makers in ‘Creation Unit Size’ on all Business Days at a price determined on the basis of approximately indicative NAV based prices (along with applicable charges and execution variations) during the Ongoing Offer for applications directly received at AMC. Large investors can redeem directly with the AMC for an amount greater than 25 crores.


FAQs

What are the types of schemes a mutual fund can launch and how do they function?

A mutual fund entity can launch various types of schemes like Open Ended Schemes, Close Ended Schemes, ETFs (Exchange Traded Funds) and Passive Schemes (Index Funds and Fund of Funds) through a New Fund Offer (NFO).
A close ended mutual fund scheme cannot be subscribed to post the NFO period whereas open-ended schemes and passive schemes (Index Funds and Fund of Funds) can be Purchased or Redeemed at the prevailing NAV post the NFO period.

What is the process of investing in an NFO?

All Applicant’s PAN(in case applicant is Minor, Guardian’s PAN) needs to be Mutual Fund KYC compliant, post which the investor can apply for the NFO either through any online medium eg. (AMC website, Channel Partner website or Exchange etc) or through the Offline mode by providing an application form and a cheque/transfer funds through RTGS/NEFT for the desired amount.

How does NFO work?

A mutual fund NFO is similar to a share IPO (initial public offering) in a sense that both are launched with an objective to raise money from the public. While money collected through mutual fund NFO is invested as per the scheme objective and endeavour to generate returns for the investors, the money collected through share IPO is invested in the company for business growth.

What are the types of scheme a mutual fund can launch?

A mutual fund company can launch open ended and close ended schemes through new fund offering. However, a close ended fund cannot be subscribed again after the NFO period. But open ended schemes can be bought or sold at the prevailing NAV post the NFO.

How many schemes a mutual fund company can bring through NFO?

A mutual fund company can have only one scheme in each fund category. Therefore, the AMC can launch a NFO only if any scheme does not exist in the particular category.

What is the NAV rate at which the NFO unit are allotted?

During the NFO, NAVs are generally allotted at par value of Rs 10.

How long a NFO is open for subscription?

A mutual fund new offering is generally open for 15 days from the date of launch.

When can I redeem the closed ended fund units bought through NFO?

All close ended funds will have a maturity date. Units are redeemed automatically on the maturity date and the proceeds are credited to investor’s bank account

What is the process of investing in a NFO?

You need to be mutual fund KYC compliant. Read the details of the NFO in the scheme offer document (SID) and Key information memorandum (KIM) released by the AMC, before investing.

An Investor Education and Awareness Initiative by Mirae Asset Mutual Fund.
For information on one-time KYC (Know Your Customer) process, Registered Mutual Funds and procedure to lodge a complaint in case of any grievance Click Here.

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

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