When the managemen launches the company for a new mutual fund in a market to raise capital by NFO i.e. New Fund Offering. This concept is an initial public offering; details of a portfolio of such a company shares to be purchased, fund manager, etc., are further incorporated in these fund offers.
In simple terms, it is the first subscription offering for any new fund offered by an investment company. A new fund offer occurs when the fund is launched, allowing the firm to raise its capital from purchasing securities.
Mutual Funds are one of the most common new fund offerings marketed by an investment company.
Basic Understanding of New Fund Offering (NFO)
As per SEBI guidelines and regulations, a new fund offering can remain active in the market for 30 days. The offer price to subscribe to such a mutual fund is Rs 10, and the collective revenue can be utilized in procuring the security of various credit companies listed on the stock exchange. After a new offer closes, any respective mutual fund has to be done on the NAV of the fund.
Subscribing to a mutual fund through a new offer is profitable for the investors to access their respective units at a nominal cost. Moreover, the later profit is substantial, allowing individuals to realize immense capital gains in the open market for trading.
NFO: A Good Opportunity
With the help of an NFO, the fund house raises the money from the public to purchase securities. Such as equity shares, bonds, and so on from the market. NFO is cheaper than existing funds in the market compared with the initial public offering, in which a company can purchase shares before getting listed on the stock exchange.
A whole range of marketing efforts can go into vain without the promotion if it’s too good to miss an opportunity.
However, sometimes, you need to put your judgment and wisdom before settling on one.
You don’t have to think much about your hard work and money; you must do thorough research and well research judgment before proceeding with any investment.
See also : How Do You Pick The Right Pension Plan?
Things To Consider As A Good Investor
If an investor wants to invest, the most important thing is to check the things one should consider before going with NFO. First, ensure that the fund house has a strong history of operating in the mutual fund industry for at least 5 to 10 years.
This will ensure that you are in the safer hands, and analyzing the kind of performance that a particular fund house has delivered during absent market downs is the most important thing. You are in the right hands if the fund house has a good track record.
- The Reputation
They are an investor who wants to invest in a well-reputed NFO. Therefore, ensure that the fund house should have a strong history of operating in mutual funds. Hence fund houses can achieve the goal of increasing their assets under management. Moreover, it will help you analyze their performance, and whether they have a good track record, then NFO will perform well.
- Cost of Investment
The overall cost involved in the investment is one of the parameters that you should see in the fund house. However, there is no entry load and effort to charge the exact load if you redeem units before the completion of tenure. Therefore, this parameter is the most important one that the investor should consider.
If the locking period is longer than your investment horizon, then your returns can be affected by exit load. The expense ratio, the annual features by the fund house for managing your money, is another crucial parameter. It is always advised to check the expense ratio to what SEBI mandates.
- Minimum Subscription
NFO usually specifies the minimum subscription amount for the investor. It may range from 500 to 5000. As an investor, it’s your primary duty to shortlist the best possible investment for you. If a minimum subscription amount is higher than what you can spare, re-evaluate your option. Take a wise decision to consider a systematic investment plan and invest in a high-performing scheme which is an affordable and more convenient choice.
How Long Does An NFO Open?
As for the regulations in India, NFO duration can be more than 15 days for any mutual fund scheme. And a force for equity funds is open for 15 days while that fund, especially those investing in very short-term fixed income options such as liquid funds, are kept open for a concise period of just 3 to 4 days.
What Happens After NFO?
Once the NFO period of the new scheme closes, the mutual fund company allots the unit of the new scheme within 5 days. If you don’t get an allotment because of incompleteness, your KYC norms are mistaken in the application form, and the fund house refunds the application money.
Nevertheless, you can buy the units of the mutual fund scheme even after the NFO mutual fund scheme is open-ended, and mutual fund schemes are those schemes that remain open for investors for entry and exit at any time. However, not all mutual fund schemes allow you this, but some of them.
There is a mutual fund scheme called close-ended funds where you can buy units only during the NFO. Close-ended mutual fund schemes do not remain open for investors to enter and exit anytime, and investment in such schemes can only be made during the NFO period.
Unlike equity, there is no big advantage in mutual fund schemes if you invest early. It is only prudent to opt for an existing mutual fund scheme that has a province track record instead of going for something new and unpredictable.