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New Fund Offer - NFO

A new fund offer is the first-time subscription offer for a new MF scheme available only for a limited period of time by fund houses. It is launched with the intent to raise capital from the public, so as to buy securities such as shares, government bonds, etc. from the market. Mutual funds are among the most common new fund offerings marketed by investment companies. The initial purchasing offer for a new fund differs on the basis of the fund’s structuring. However, most of these new funds are generally launched at a price of Rs. 10 per unit.

Things to Consider before Investing in NFO

Listed below are some of the factors that an individual has to take into consideration before investing in an NFO:

  • Reputation of fund house: Prior to investing in an NFO, an investor should undertake a background check on the fund house. It is essential to ensure that the fund house has a substantial history of operating in the mutual fund industry, say about 5 to 10 years. Also, analyse how the fund house has performed during market ups and downs. If the fund house has a positive track record, then the NFO may perform as promised.
  • Risk factor: Investments made in NFOs involve a certain level of risk. In the case of existing funds, one can check the asset allocation and risks involved, whereas NFOs don’t have a performance history. Therefore, without any benchmark or metrics, it can get difficult to predict how an investment in an NFO is going to perform.
  • Investment objective: Each scheme has a different asset allocation, which determines its investment objective. Investors need to assess if the NFO's investment objective matches with their own. An individual who does not wish to take on much risk must refrain from investing in a mid-cap fund, and someone seeking long-term growth should stay away from bond funds and balanced schemes.
  • Expenses: The overall cost is an important criterion that determines one’s potential returns. Even though there might not be an entry load, some NFOs may levy exit loads if the units are redeemed before the completion of the tenure. Also, take into consideration the expense ratio of the fund and compare it against that of similar funds.
  • Look beyond its face value: When one factors in the face value of Rs. 10 per unit, then yes, NFOs do look attractive. That, however, cannot be the only factor that an investor takes into consideration. A low face value does not necessarily promise a good opening or sustained performance vis-a-vis other funds. Rather, check to see if the NFO is offering a unique theme or whether its investment objective suits the prospective investor's financial goals and risk appetite.

Why NFO can be a Good Opportunity?

NFOs cost lesser when compared with existing funds on account of them being new in the market. The cost advantage makes it easier for investors to purchase a greater number of units. For fund houses, NFOs give them the opportunity to raise money from the public for the purchase of securities, like equity shares, bonds etc. from the market. NFO are in a way similar to IPOs, in which the public can buy shares prior to them getting listed on the exchange.

Who Invests in a New Fund Offer?

Mutual fund investors hope to make gains when the markets are at their peak. They enter the market assuming that it will move up further. But, at the same time, they are looking out for lucrative investments that are available at a lower rate. This can be attributed as one of the reasons why people tend to go after the cheaper NFOs. They see it as value-for-money proposition and purchase the units. When the investors do this, the fund houses are able to reach their goal of increasing their asset under management.

New Fund Offer January 2019

During the month of January 2019, the below new fund offers were by launched by mutual fund houses:

ABSL Mutual Fund - Bal Bhavishya Yojna

ABSL Bal Bhavishya Yojna is an open-ended children's fund by Aditya Birla Sun Life AMC. Its New Fund Offer opened on January 22, 2019, and closed on February 5, 2019.

Baroda - Money Market Fund

Baroda Money Market Fund is an open-ended debt scheme by Baroda Mutual Fund that invests in money market instruments. Its New Fund Offer opened on June 13, 2019, and closed on June 18, 2019.

Canara Robeco Small Cap Fund

Canara Robeco Small Cap Fund is an open-ended equity scheme by Canara Robeco Mutual Fund that primarily invests in small cap stocks. Its New Fund Offer opened on January 25, 2019, and closed on February 8, 2019.

IDFC Overnight Fund

IDFC Overnight Fund by IDFC Mutual Fund is an open-ended debt scheme by IDFC Mutual Fund that invests in overnight securities. Its New Fund Offer opened on January 16, 2019, and closed on January 17, 2019.

LIC - Short Term Debt Fund

LIC Short Term Debt Fund is an open-ended short-term debt scheme by LIC Mutual Fund. Its New Fund Offer opened on January 11, 2019, and closed on January 25, 2019.

SBI - Corporate Bond Fund

SBI - Corporate Bond Fund is an open-ended debt scheme by SBI Mutual Fund that primarily invests in AA+ and above rated corporate bonds. Its New Fund Offer opened on January 16, 2019, and closed on January 16, 2019.

Union Arbitrage Fund

Union Arbitrage Fund is an open-ended scheme by Union Mutual Fund that invests in arbitrage opportunities. Its New Fund Offer opened on January 30, 2019, and closed on February 13, 2019.

Kotak Mahindra Overnight Fund

Kotak Overnight Fund is an open-ended debt scheme by Kotak Mutual Fund that invests in overnight securities. Its New Fund Offer opened on January 10, 2019, and closed on January 14, 2019.

Tata Balanced Advantage Fund

Tata Balanced Advantage Fund is an open-ended dynamic asset allocation fund by TATA Mutual Fund. Its New Fund Offer opened on January 9, 2019, and closed on January 23, 2019.

DSP Overnight Fund

DSP Overnight Fund is an open-ended debt scheme by DSP Mutual Fund that invests in overnight securities. Its New Fund Offer opened on January 7, 2019, and closed on January 9, 2019.

FAQs on New Fund Offers NFO

What is the difference between IPO and NFO?

Often times, people confuse NFOs to mean the same as IPOs since both offer a way for companies to raise money. However, they both differ. IPOs enable business to raise capital to improve their operations, whereas NFOs help asset management companies raise funds from investors to buy more company stocks, debt, etc.

What is NFO in mutual fund?

An NFO is the first-time subscription offer for a new mutual fund scheme available only for a limited period by fund houses. Its purpose is to raise capital from the public, so as to buy securities such as shares, government bonds, etc. from the market.

What is NFO and FMP?

NFO is a first-time subscription offer for a new mutual fund scheme that is available for a limited period by the fund houses. Fixed Maturity Plans are debt funds, whose objective is to provide steady returns over a fixed-maturity period, thus protecting investors from market fluctuations.

Why should we invest in NFO?

NFOs cost lesser when compared with existing funds on account of them being new in the market. The cost advantage makes it easier for investors to acquire higher number of units.

What is close ended mutual fund?

Close-ended mutual funds are those whose unit capital is fixed, and the number of units to be sold are specific. Investors are not permitted to buy the units of a closed-ended fund, once the NFO period is over. This means that new investors cannot enter, nor can existing investors exit until the scheme’s term ends.

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