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New Fund Offer (NFO)

Updated on March 20, 2023

In the context of Mutual Funds, when an investment company launches a new fund on a first subscription basis for investment as per its strategy, it is called New Fund Offer (NFO). The NFO remains open for a specified time frame and all interested investors can invest during this period. This differs from an IPO in which shares of one company are issued for participation by the general public. After the closure of the NFO, the mutual fund may re-open for investment and investors have the option to subscribe at the then prevailing Net Asset Value (NAV).

What should investors know before investing in an NFO?

Investors should check the following aspects before investing in an NFO:
1 Scheme Documents – It is important to check the scheme’s documents for its investment strategy, fund manager information, benchmark index etc.
2. Objective – It is important to know about the investment objective of the scheme and how it is planning to allocate its assets.
3. Asset allocation strategy – Investors need to evaluate the asset allocation strategy of the scheme to assess their risk tolerance towards various asset classes such as equity, debt, gold, etc.
4. Stock selection process – the process and rationale behind the Mutual Fund scheme securities/stock selection should be carefully studied as it reflects the fund’s long-term outlook and the philosophy behind the plan.
5. Investment theme – investors need to study the theme to understand if the fund house is offering a unique proposition for the long term. If the fund is similar to the products available in the market, it will not offer anything new to their portfolio.