What are new fund offers (NFOs)?

Published: Monday, January 6, 2014, 13:13 [IST]

New Fund Offer (NFO) is a mutual fund scheme that is opened for subscription for the first time by the asset management company (AMC). Such an offer is introduced to mobilize capital from the public to purchase government bonds, shares etc. NFOs with a prime objective of raising capital from the market are similar to Initial Public Offers (IPOs).

A NFO could be an open ended fund or a close-ended fund. Open ended fund is available for subscription again after closing at the applicable NAV for the day while closed ended funds cannot be subscribed to after end of the stipulated period of offer. With stipulated period for subscription, investors intending to invest in such NFO schemes at offer price (that is generally Rs. 10) can plunge in the scheme during this time only.

How can you invest in a NFO?

It is suggested to read the Offer document before putting money into any mutual fund scheme and an NFO is no exception. After you are satisfied with the terms and conditions put forth in the scheme, you must fill the requisite form that can be obtained from the mutual fund distributor. You can also go through the Key Information Memorandum (KIM) that is available with the application form for the concerned scheme.

After submission of the filled in application form along with the fees to the distributor, documents are carried forward to the Registrar & Transfer (R&T) agent or RTA. An RTA which functions as a third-party to the mutual fund house facilitates investors in executing their transactions. R&T agent enters all the provided information into the system and sends the remitted cheque to the bank where mutual fund house maintains the account for clearance. On the cheque being cleared by the bank, RTA provides mutual fund units to the investor.

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Story first published: Monday, January 6, 2014, 13:13 [IST]