When it comes to investing in the financial markets, both initial public offerings (IPOs) and new fund offers (NFOs) play significant roles. While IPOs provide an opportunity to invest in a company’s shares for the first time, NFOs offer a chance to invest in a mutual fund scheme during its launch. This article explores the concept of NFO funds, their features, and the process of investing in them in India.
How do NFOs work, and what are their features?
A New Fund Offer (NFO) in the context of mutual funds refers to the launch of a new scheme by an asset management company (AMC). During an NFO, the AMC offers units of the new mutual fund scheme to investors for subscription. NFOs can be of two types:
- Open-ended funds: NFOs for open ended funds have no fixed maturity period and do not have any restrictions on entry or exit for investors. Investors can buy or redeem units of an open-ended fund at any time after the NFO, based on the fund’s Net Asset Value (NAV). These funds provide liquidity and flexibility to investors and are ideal for those seeking ongoing investment opportunities.
- Close-ended funds: Close-ended NFOs have a specified maturity period, and investors can subscribe to the fund only during the NFO period. Once the NFO ends, the fund is closed for further subscriptions. The units of close-ended funds are listed on stock exchanges, allowing investors to trade them like stocks, providing liquidity in the secondary market. Investors can exit a close-ended fund before its maturity by selling units on the stock exchange.
Here is how you can invest in an NFO in India
Investing in an NFO is not the same as investing in an existing mutual fund. Follow these steps to invest in NFOs in India:
- Identify suitable NFOs: Start by researching and identifying NFOs that align with your investment goals, risk appetite, and investment horizon.
- Complete the necessary documentation: To invest in an NFO, you need to complete the Know Your Customer (KYC) formalities with the AMC or a registrar and transfer agent (RTA) of the mutual fund.
- Fill the application form: Obtain the NFO application form either online or from the AMC’s investor service centers, distributors, or RTA and fill in the required details.
- Choose the payment method: NFOs accept investments through various payment methods such as cheques, demand drafts, or online fund transfers.
- Submit the application form: Submit the duly filled and signed application form along with the necessary documents and payment to the designated collection centers.
- Receive allotment confirmation: Once the NFO closes, the AMC allots units to investors based on the subscription amount and applicable NAV.
Investors must carefully analyze the NFO’s features and compare them with existing funds before making investment decisions. Additionally, they must understand the different types of NFOs and choose a scheme that aligns with their investment preferences. It is prudent to consult with a financial advisor before investing in NFOs to make well-informed choices.