What is an NFO and how does it function?
An NFO (New Fund Offer) is the launch phase of a new mutual fund scheme by an Asset Management Company (AMC). During this initial period, investors can subscribe to the fund at its base price—typically ₹10 per unit—before it gets listed and begins NAV-based trading.
Types of NFOs
AMCs may launch NFOs in three primary formats:
- Open-end scheme: Available for ongoing purchase and redemption after the NFO closes. These are ideal for long-term investors looking for flexibility.
- Closed-end scheme: Has a fixed maturity and doesn’t permit redemptions until maturity. Listed on exchanges but less liquid than open-end schemes.
- Exchange Traded Fund (ETF): A passively managed fund that tracks an index or asset class. ETFs are listed and traded like stocks in the secondary market.
How NFOs work?
- AMCs announce the scheme and open it for subscription for a limited time.
- Investors apply at the base price during this window.
- Once the subscription closes, units are allotted and investments are deployed according to the scheme’s objective.
- Open-end schemes begin daily NAV calculation and open for transactions.
- ETFs list on stock exchanges post-NFO.
What if...
| Scenario | Explanation |
|---|
| You miss the NFO window | You can still invest in open-end schemes after the NFO period. |
| You want to exit a closed-end NFO early | You'll need to wait for maturity or trade units on the exchange (if listed). |
| You're comparing NFO with existing funds | Consider past AMC performance and scheme objectives. |
| You’re looking for liquidity | Open-end schemes and ETFs offer higher liquidity than closed-end funds. |
Always review the Scheme Information Document (SID) for detailed insights into the fund’s objectives, investment strategy, and risk factors before subscribing.
Last updated: 11 Jun 2025
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