New fund offer (NFO)
A new fund offer is an opportunity for the investors to subscribe to the newly launched fund scheme available for a limited period. In the NFO, asset management company (AMC) launches the new fund on the first subscription basis to finance their purchased securities.
In NFO, investors can purchase the units of the mutual fund scheme during the said duration and subscribe to the NFO at the offer price. It is usually fixed at Rs.10. Once the duration is over, an investor can then purchase the fund units at a specific price. NFO subscribers, in general, have earned better profits post listing of the scheme.
New fund offer helps the asset management companies to raise fund from the public to purchase securities such as equities, bond, etc from the market. Investing in NFO is affordable than investing in existing funds as it is a new product in the market. Many of the investors jump on the mutual fund investment opportunities when the market is trending upwards.
Through any means of investment- gold investment or real estate, the common man desire to enter the market, in the hope of earning good returns. At the same time, investors also like to opt for affordable investment products available at an economical price. Due to this investment psychology, investors find NFO a value for money and thus subscribe to it.
As an investor, it is a must to consider few things before investing in the upcoming NFO:
Fund house reputation
Fund goals
NFO theme
Returns on the NFO
Risk components
Minimum subscription amount
Cost of investment
Investment period (lock-in period)
Conclusion
New fund offers can be compared with Initial public offerings (IPO). There are many marketing and promotion strategies involved for NFO thus making it hard to miss an opportunity for the investors.
Before investing in any NFO, it is important to understand the market first through rational means before subscribing to one. Any fund house should explain the investment process for what the fund manager is going to do with the NFO investor’s money.