What is Mutual Fund NFO?

 

What is NFO?

A new fund offer (NFO) is a first-time subscription offer for a new scheme that has been launched by an asset management company. The fund house can launch an NFO around a theme or simply to complete their product basket. Once the NFO is over, the fund will reopen for subscription again and investors have the option to subscribe at the prevailing net asset value (NAV).

Why do mutual funds come out with New fund offering?

With the help of an NFO, the fund house raises money from the public to purchase securities such as equity shares, bonds, and so on, in the market. New fund offer allows the fund house to raise money to complete its basket of offerings as per SEBI category classification. For example if an AMC does not have a Multicap fund, it can launch an NFO to offer that product to investor. Sometime NFOs are launched as fund management team believes there are good investment opportunities prevalent relating to a particular theme at that point in time. You need to put in your judgment and wisdom before settling for one.

Things to be consider before investing in NFO:-

• Fund House Reputation
• Fund Objective
• Theme of NFO
• Asset Allocation
• Risk factor
• Cost of investment
• Minimum subscription Amount
• Investment Horizon
• Risk classification

Should I invest in all NFOs?

Before investing in NFOs one should consider one’s own investment objective, investment horizon and own asset classification. If the NFOs objective and other factors are in line with your own objective, horizon and asset allocation than only you should invest in an NFO or else should give it a miss.

What is the time period to invest in NFO?

In a new fund offer, the opportunity to subscribe to the scheme is available only for a limited period usually 15 days. The investors may purchase units of the mutual fund scheme during the pre-defined period and subscribe to the NFO at an offer price. This is usually fixed at Rs 10.

When do I get units after investing in NFO?

The process of allotment of Units generally gets completed within 5 (five) business days from the date of closure of the New Fund Offer Period. The asset management company issues units in dematerialized form to a unit holder in a scheme within two working days of the receipt of request from the unit holder.

Can I redeem immediately after investing in NFO?

In an open ended scheme, redemption and switch out gets commenced not later than 5 business days from date of allotment. It is advised to re-evaluate your options in case the preferred NFO investment horizon happens to be longer than your investment horizon.

When can I see the portfolio once I have invested in the NFO?

In terms of SEBI regulations, a complete statement of the Scheme portfolio will be sent to all unit holders, within ten days from the close of each month whose email addresses are registered with the Mutual Fund. AMC will disclose the portfolio within ten days from the close of the month in which the NFO period was closed. Example, if NFO was closed on 15th March, AMC will disclose the portfolio closer to 10th April.

What are the charges of investing in NFO?

 The overall cost involved in investment is one of many parameters that decide your potential returns. All the expenses relating to the NFO are borne by the Asset management company and investors do not have any additional charge for investing. Once the NFO opens up, expense ratio up to 2.25% of the assets can be charged by the AMC depending on the quantum of assets garnered during the NFO.

Happy Investing...

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Article Credit: ICICIdirect.com

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