New Fund Offer

What is an NFO?

When an Asset Management Company (AMC) launches a new mutual fund in the market then it is called an NFO or New Fund Offer. The concept is very much similar to IPO (Initial Public Offering) for stocks. The subscription price for these NFOs are usually set at Rs.10 per unit. In other words, we can say that NAV of a new fund offer at launch is Rs. 10.


Is NFO a good opportunity to invest?

As NFOs are new to the market, they are relatively cheaper as compared to the existing mutual funds accessible in the financial market place. This gives you a price advantage if you invest in an NFO.

Investors can invest in an NFO during subscription period just like IPO before it gets listed on the stock exchange. Through NFOs, fund houses raise money from the public and invest it in securities such as shares, bonds, fixed income securities etc.

So why wait! Grab this opportunity offered by fund houses to invest in mutual funds at best prices.


Who should go for NFO?

Investors who are looking for value for money proposition as NFOs are lucrative in nature.


Benefits of NFO

  • Flexibility - Fund manager has the flexibility to invest the pool of money as per his professional expertise to meet the investment objective in a pre- specified category.
  • New Strategies - AMCs come up with NFOs with new investment strategies.
  • Lock in advantage - In case of close ended NFOs, lock in period proves to benefit investors by inculcating a disciplined and long term investment.

Factors to consider while investing in NFO

  • Fund Objectives
  • Fund House brand image
  • Fund Category
  • Minimum investment amount
  • Risk category
  • Fund Manager
  • Expenses on investments
  • Investment Tenure


What are different types of NFOs?

There are two types of NFOs. One is open ended and second is close ended. Open ended funds are those funds where investors can enter and exit anytime from the fund once the NFO ends.

However, in case of close ended funds, entry and exit of investors is prohibited. Investors can invest only at the time of subscription and their investment will be locked in for certain period which differs from fund to fund. Having said that, one may still buy and sell close ended funds from the stock exchange as these are listed.

How are NFOs taxed?

NFOs are taxed like any other mutual fund. All equity NFOs where equity allocation is 65% and above are taxed at 15% for short term capital gains. Long term capital gains are exempt upto 1 lac and 10% is levied on gain exceeding 1 lac. Please note that short term and long term is decided based on holding period of 12 months.

All other NFOs are taxed similar to debt mutual funds where short term and long term gain is ascertained based on holding period of 36 months. Short term capital gains are taxed at investor’s individual slab rates and long term capital gains are taxed at 20% with indexation benefit.

How does an NFO work?

NFOs are available for subscription for a limited time period at its offer price which is Rs.10. In case of open ended schemes, once the subscription period is over, it reopens after few days for buy and sell. But in case of close ended schemes, after the subscription period is over, the scheme is shut for any further investments and ones who subscribed cannot sell their investments for a stipulated time.

How much time is given for subscription?

It differs from fund to fund. As per SEBI, the subscription period could be 15-30 days.

How to invest?

KYC is must to invest in NFO. Pan card copy, photo and address proof is required for the same. Apart from this, bank details are also required.