Investing in NFOs is a straightforward process. During the NFO period, you can subscribe to the fund by filling out an application form provided by the mutual fund house. This form includes essential details like your personal information, investment amount, and payment mode. You can apply through both offline channels, visiting the fund house or its authorised centres, and online platforms.
This article is here to help you understand the beginning of investing through something called New Fund Offers, or NFOs. NFOs are like the birth of a mutual fund scheme, giving you the chance to join in from the start. In simple terms, we'll explain what NFOs are, the different kinds, and how you can invest in them. Whether you prefer investing offline or online, we've got you covered. We'll also share important things you should know before jumping in and the benefits you might gain. This guide is your friend in navigating the world of NFOs, making investing easy to understand.
Understanding the Concept of New Fund Offer (NFO)
When an Asset Management Company (AMC) introduces a fresh mutual fund scheme, it initiates a New Fund Offer (NFO). Essentially, an NFO is the debut of a mutual fund, It's like being part of the initial chapter of a story. During an NFO, the AMC gathers the necessary funds to invest in stocks or debt instruments. Investors have a window of ten to fifteen days to subscribe to units at a fixed NAV of Rs. 10 per unit. It is important to note that the NAV of NFOs usually starts with Rs. 10, however the same may not apply for liquid schemes.
Types of New Fund Offers (NFOs)
Now that you grasp what a New Fund Offer (NFO) entails, let's understand the types of NFOs in mutual funds.
- Open-ended: This type of mutual fund offers flexibility for entry or exit at any time. You can invest during the NFO period, after it ends as a lump sum, or through a Systematic Investment Plan (SIP). However, some equity and debt funds may impose an exit load on withdrawals made before a specified period.
- Close-ended: As the name suggests, a close-ended mutual fund doesn't allow premature withdrawals. Closed ended mutual funds are listed on stock exchange where they can be redeemed if there is a buyer in the secondary market.
Let's illustrate open-ended and close-ended NFOs with an example:
Imagine an Asset Management Company is launching a one-year closed-ended Fund NFO named “A” with an NAV of Rs. 100 per unit. If an investor, “R”, buys 10 units during the debut and later sells them, they could earn a profit. Open-ended funds, which allow redemption at any time, contrast with close-ended funds.
Another NFO type is interval funds, a hybrid of closed-ended and open-ended funds, offering acquisition and redemption at set intervals through the AMC portal, like yearly or semi-annually.