How to Invest in New Fund Offering (NFO) Online in India

The rising number of Asset Management Companies (AMCs) in the mutual fund market is a testimony to the growing popularity of MFs. One needs only to browse through AMC websites to see the plethora of fund options available. However, have you ever wondered how these funds come into existence? Through a New Fund Offering (NFO).

But what exactly are NFO mutual funds, and how do they work? Let’s find out.

What is an NFO?

When an Asset Management Company (AMC) launches a new mutual fund in the market, it can raise capital for the same by making an announcement for a New Fund Offering among investors.

Similar to an Initial Public Offering (IPO), and NFO also includes portfolio details such as company shares to be purchased, fund manager details, and types of securities to be procured, among others.

Understanding the New Fund Offering

As per SEBI guidelines, an NFO can remain active in the market for a maximum of 30 days. Each unit of the fund will be offered at the subscription price during this time.

After the limited period is over and the NFO closes, the funds will be traded like any other mutual fund in the market – at their Net Asset Value (NAV). Since NFO fund units are available at nominal costs, investors can realise immense capital gains once the funds start trading in the open market.

Additional Read: Buying Mutual Funds at Lower NAV vs. Higher NAV

Things to consider before investing in NFOs

• The AMC’s reputation

It is essential to research the history of the AMC launching the NFO as the future performance of the fund depends upon it. A company with a good reputation can be trusted to offer good and consistent returns.

• Nature of securities

NFO funds come with a mandate listing; details regarding the securities to be procured are given. It is vital to go through such documents as the nature of the securities will determine the risk involved and expected returns.

For example, risk-averse investors can steer clear of equity funds and choose NFOs that primarily invest in debt funds or funds of blue-chip companies.

How to Invest in NFO

1. Through a broker

One of the most basic methods to invest in NFO is to consult an authorised broker. The broker will assist you in completing all formalities and give you details about the fund's future performance.

2. Through an online trading account

If you’re already an investor, you must have an online trading account. The same can be used to invest in New Fund Offerings. The online trading account will also help you track the NAV of the investments.

3. Through the Moneyfy app

Another highly flexible option for comparing NFO offerings and investing in the best-suited ones is Tata Capital's Moneyfy app. You can take your time, browse through different NFO offerings and make an informed decision from the comfort of your home.

Additional Read: How Debt Mutual Funds benefit in your Portfolio

Types of new fund offering (NFO)

Here are the different types of new fund offerings in mutual funds that you can consider investing in-

1. Open-ended

This mutual fund offering carries the flexibility to enter or exit at any time. You can invest in these mutual funds during the NFO period, in lump sum after NFO ends, or through SIPs. However, certain equity or debt funds might put an exit load on withdrawals before a specific period.

2. Close-ended 

Close ended mutual fund schemes do not allow premature withdrawals. They are listed on the stock exchange and can be redeemed there if there’s a buyer in the secondary market.

Benefits of investing in NFO

1. Access to initial investment

NFOs are typically offered at the initial predetermined price, commonly at Rs. 10 per unit. This makes NFOs accessible to a wide range of investors with limited financial resources looking for growth opportunities.

2. High potential for future growth

NFOs carry a high growth potential as the fund matures, given the fund effectively managed and the investment strategy aligns with the investor’s financial goals.

3. Fresh investment opportunities

NFOs allow investors to take benefit of novel mutual fund schemes, which often introduce innovative investment themes or strategies to the market. This gives investors a unique opportunity to diversify their portfolio with new investments.

4. Professional fund management

They are professionally managed by seasoned fund managers who apply their market knowledge and expertise to boost the fund growth based on its objectives and existing market conditions.

Over to you

Investing in NFOs offers several benefits like high flexibility, lock-in support, etc. So, have you explored the most lucrative NFO mutual fund options available? Do so now using Tata Capital’s Moneyfy app! Explore a world of mutual fund schemes and start making smart investments today.

FAQs

Can we invest directly in NFO?

You can invest directly in a New Fund Offer (NFO) through the issuing company's (AMC) website, online brokerage platforms, or via mutual fund apps.

How to invest in NFO directly?

To invest directly in an NFO, visit the fund house's office or contact a broker, fill in the application form, complete KYC, select the NFO, and make the payment online through your investment account.

Is it safe to invest in NFO?

NFOs carry similar risks as mutual funds and depend on market performance and fund strategy. It is essential to consider your risk appetite and financial goals before investing.

Which NFO is best to invest now?

The best NFO depends on current market conditions, your financial goals, and the fund’s strategy. 

What is the process of NFO?

The NFO process involves launching a new mutual fund scheme to raise capital. Investors can subscribe during the offer period at a fixed price before the scheme becomes available for trading.