A firm launches a new fund offer (NFO) in order to raise capital for purchasing securities. An NFO is the introductory offer of a mutual fund scheme by an investment company.
Read this article to find out more about a new fund offer.
You might know about mutual fund schemes and how they can help you increase your wealth. But do you know how they come into being? A mutual fund is launched via a new fund offer. An NFO is the first subscription of a mutual fund scheme. NFOs are released for a limited period. Investors can subscribe to the units of a scheme only during this period.
Many people often think that an initial public offering (IPO) and a new fund offer are the same. However, there are some differences between an IPO and an NFO, such as-
- In order to launch a fund, an investment company launches an NFO. Whereas, an IPO is the initial offering made for the subscription of shares by a company. An IPO occurs before the shares of a company are listed on indices such as Sensex and Nifty.
- Typically, an IPO is launched by a company that has existed for a while. Therefore, investors can check out the past performance of the company before investing. However, in an NFO, investors can’t analyse the past performance of a scheme.
- An IPO’s price is dictated by the company’s fundamentals, its past performance, and its prospects. Thus, an IPO might be priced below or above the stock’s real value. Whereas an NFO is priced at face value of the units.
Types of New Fund Offers
An open-ended fund is launched after the new fund offer ends. After the launch, investors can exit and enter any time.
Investors can’t exit or/and enter a close-ended fund after the new fund offer period, until maturity. Generally, close-ended funds have a maturity period of 3-4 years from the launch date.
Things To Consider Before Investing in New Fund Offers
NFOs can offer high returns to the investors, but it is unwise to assume that every NFO will generate substantial profits. Therefore, it is of utmost importance to keep the below points in mind before investing in NFOs.Read more: How to Apply for Pradhan Mantri Awas Yojana?
- Make sure you check the reputation of the fund house. It is recommended that you choose a fund house that has a good record.
- You must check out the fund’s objectives. By understanding the fund’s objectives, you will find out about the risk factors associated with it, asset allocation, liquidity, returns expected, etc.
- It is extremely crucial to understand the theme of the fund. It is recommended that you select a new fund offer that is unique.
- An NFO has no performance history. This means that the NFO you invest in can bring in an additional level of risk.
- It is critical to understand the offer document. Furthermore, you need to know about the investment process that the fund manager is going to follow.