What is New Fund Offer (NFO)?

Last Updated on September 27, 2023 by BFSLTeam BFSLTeam

NFO is an investment opportunity where you can invest in a newly created fund having exposure to a variety of financial assets, which includes equity, debt, real estate, gold, or even a hybrid combination of these assets. These funds can be beneficial for both small-time retail investors as well as experienced institutional investors.

In this blog post, we’ll cover all about NFO, including the different types of NFOs, and the benefits that NFO investors can enjoy.

Things to Know about an NFO

Before investing in NFO, there are certain important things one must consider:

• NFO is offered by asset management companies (AMC) or mutual fund houses to raise capital for investments.

• Typically, NFO units are offered at a fixed price of INR 10.
  
• All information about the NFO is provided in a Scheme Information Document (SID).

• NFOs are available only for a limited period, which ranges from 10 to 15 days.

Types of New Fund Offers

NFOs come in several different types, each with its features and advantages. Some of the most common NFOs include:

Closed-End Fund: A closed-end NFO is a fund with a fixed number of NFO units, and investors can purchase NFO units only during the pre-defined subscription period. The maturity period of these funds usually ranges from three to five years, and investors can only make withdrawals after the maturity date.

Open-End Fund: An open-end is a type of NFO that allows investors to buy or redeem NFO units at any time, and unlike closed-end funds, they do not have a maturity period.

How to invest in NFO?

Investing in NFO is fairly simple. Here are the steps you need to follow:

1. Open your Demat account for free with Bajaj Financial Securities in just a few clicks.
   
2. You can research different NFOs available on our platform. This helps you choose the one that best suits your needs and financial goals. 

3. Choose an NFO provider and fill out the NFO application. This includes details about your financial goals and the NFO you want to invest in.

4. Once you’ve completed the NFO application form, you can make the NFO payment using UPI, credit card, or net banking. 

IPO vs. NFO

IPO refers to the process by which a company goes public to raise capital and sells shares of its stock to retail investors for the first time. On the other hand, NFO refers to the process by which an asset management company raises capital from investors by selling units of the mutual fund.

The price of an IPO is indicative of the value of the company. Whereas NFO units are typically priced at INR 10 is not indicative of anything.

The IPO valuation is done based on P/E and P/B ratios, which determine its pricing. In NFO, there is no question of valuation as funds collected are simply divided into units.

An initial public offering (IPO) requires efficient funds usage in order to provide value for investors. In the case of an NFO, the level of the market for which the AMC is raising funds will determine whether the investors will gain value from their investment.

NFOs are generally less risky than IPOs as they involve lower-risk investment instruments like debt and index funds, whereas IPOs can be riskier due to their exposure to the stock market. NFOs also tend to have a smaller minimum investment requirement compared to IPOs.

How NFO is a good opportunity for an investor?

NFOs can provide investors with several advantages over other investments, such as:

• Investment in New Strategies: NFOs provide access to unique investment strategies that may have been unavailable to retail investors. These funds also offer the opportunity to invest in new asset classes and products before they become widely available on the stock exchange.

• Lock-in Support: Closed-ended NFO offers lock-in support. This helps to ensure that your NFO investment remains invested for a longer duration and will not be adversely affected by any short-term market fluctuations.
  
• High Returns: Investing in a new fund offer could prove to be a profitable venture. By purchasing the units at a nominal rate, investors have great potential for gain when they are traded on open markets, as an increment in their NAV can lead to significant profits.
  
• Flexibility: When you invest your funds through NFO, itoffers greater flexibility to fund managers while investing in the market. If the funds are being offered at a peak level of the market, the fund manager can choose to hold your funds and invest them when the time is right.

• Diversification: NFOs provide investors with an opportunity to diversify their portfolios and reduce risk.

Conclusion

New Fund Offers (NFOs) are a great way for investors to gain exposure to different asset classes. Due diligence is important for investors before investing in NFOs, as different NFOs have different features and risks. NFOs can provide investors with the potential for high returns, and safe investing options, and are an attractive choice for investors looking to diversify their portfolios.

Disclaimer: Investments in securities markets are subject to market risks, read all the related documents carefully before investing.