NEW FUND 
OFFER

New fund offers (NFOs) can be launched in different formats depending on their structure and investment objective. Broadly, NFOs can be classified into two categories:

1. Open-ended NFOs: After the initial subscription period, these funds remain open for continuous buying and selling of units. Investors can enter or exit anytime at the prevailing net asset value (NAV). They may be suitable for investors who value liquidity and flexibility.
2. Closed-ended NFOs: These schemes have a fixed maturity period, usually 3 to 5 years or longer. Units are available only during the NFO period and cannot be redeemed until maturity, though they may be listed on stock exchanges. They may be suitable for investors who can remain invested for a fixed duration.

A new fund offer (NFO) is introduced by an Asset Management Company (AMC), which oversees and manages mutual fund schemes. An AMC is responsible for designing the fund’s objective, deciding the asset allocation, and appointing a fund manager to oversee investments. The launch of an NFO allows the AMC to introduce new themes, strategies, or categories to investors. Before an NFO is launched, the AMC must obtain final observation letter from the Securities and Exchange Board of India (SEBI) on draft offer document. SEBI regulates mutual funds and ensures that each NFO complies with rules related to disclosures, transparency, and investor protection.

A New Fund Offer (NFO) works by allowing investors to subscribe to a newly launched mutual fund scheme during a fixed subscription window. The units are generally offered at a face value of Rs. 10 each in case of equity schemes and Rs. 1000 per unit in case of debt schemes. After NFO, the scheme becomes open-ended or closed-ended with restrictions.

The process of an NFO can be understood in stages:

• Launch: The asset management company (AMC) announces the NFO with details of the scheme objective, strategy, and risk factors.
• Subscription period: Investors can apply for units during this limited-time window.
• Allotment: Units are allotted after the offer closes, at face value.
• Post-NFO operations: The NAV is calculated daily, and the fund manager begins investing as per the stated strategy[

NFOs may be considered by:

• Investors exploring new themes or strategies: Some NFOs are launched to capture opportunities in specific sectors, themes, or asset classes not covered by existing schemes.
• Investors with a long-term horizon: Since returns depend on market performance and fund management, those willing to stay invested for a longer duration may find it suitable. Please note that the past performance may or may not be sustained in future.
• Investors who can evaluate beyond past returns: Experienced investors who understand how to assess a scheme based on objectives, allocation, and AMC credibility may consider NFOs.
• Investors seeking diversification: NFOs can add a different category or asset mix to an existing portfolio, provided it aligns with overall financial goals.

However, NFOs may not be suitable for those who prefer schemes with an established performance track record.

Steps to invest in an NFO with Bajaj Finserv AMC:

• Check the NFO details: Review the scheme information document (SID) and key information memorandum (KIM) available on Bajaj Finserv AMC’s website or through distributors.
• Complete KYC requirements: Ensure you are KYC-compliant by submitting valid identity and address proof.
• Apply through online channels: Investors can subscribe directly through the Bajaj Finserv AMC website, mobile app, or distributor platforms.

Apply through offline channels: Forms are available at Bajaj Finserv AMC branches, registered distributors.

The tax implications of a new fund offer (NFO), just like any other regular mutual funds, depends primarily on whether the fund is classified as equity-oriented or debt-oriented.

• Equity-oriented NFOs (over 65% in equity): Short-term capital gains (STCG): If units are sold within 12 months, gains are taxed at 20%.
• Long-term capital gains (LTCG): Gains above Rs. 1.25 lakh in a financial year, on units held for more than 12 months, are taxed at 12.5% without indexation.
• Debt-oriented NFOs (less than 65% in equity): All gains, irrespective of holding period, are taxed as per the investor’s income tax slab rate.

A New Fund Offer (NFO) and an existing mutual fund scheme both represent investment options managed by Asset Management Companies (AMCs), but there are important differences between the two.

Key differences between NFOs and existing schemes:

*Past performance may or may not be sustained in future.

A new fund offer (NFO) and an initial public offering (IPO) are fundamentally different in nature, purpose, and how they create value for investors. Key differences are:

Once a new fund offer (NFO) closes, the Asset Management Company (AMC) allots units to investors at the face value, usually Rs. 10 per unit in case of equity schemes and Rs. 1000 per unit in case of debt schemes. From this point, the scheme transitions into its operational phase, and the way it functions depends on whether it is open-ended or closed-ended.

Open-ended NFOs allow daily NAV-based transactions, while closed-ended NFOs lock funds till maturity but are usually exchange-listed, offering limited trading and varying liquidity.

For both types, the fund manager begins investing the pooled money as per the stated investment objective and strategy. From then on, the fund operates like any other mutual fund scheme. Investors should track updates such as portfolio composition, periodic fact sheets, and NAV movement to evaluate ongoing suitability.

A new fund offer (NFO) can be suitable for certain investors who want to explore new opportunities introduced by an asset management company (AMC).

Potential benefits of NFOs include:

• Access to new themes and strategies: NFOs often introduce funds targeting emerging sectors, asset classes, or investment approaches that may not be available in existing schemes.
• Diversification opportunities: Investors can use NFOs to add a new category or strategy to their existing portfolio, which may improve diversification.
• Early participation: Investors subscribing during the NFO period get to be part of the scheme from its inception, allowing full participation in its journey.
• Structured offerings: Closed-ended NFOs may help disciplined investors stay invested for a fixed duration, since premature exits are not permitted.
• Ground-level pricing: Units are offered at face value, allowing investors to enter at the base price without paying a potential premium.
• Professional management: Mutual funds are managed by professional fund managers, which may support better portfolio selection and ongoing monitoring.
• Opportunity to align with evolving market segments: Some NFOs are launched to capture structural or regulatory changes in the economy, offering investors exposure to segments that are gaining relevance.

NFOs may carry unique risks due to their newness. Here are a few things investors may want to keep in mind before investing in NFOs:

• No performance track record: Unlike existing funds, NFOs lack historical returns, risk metrics, or cycle-tested data making it harder to gauge consistency.
• Evaluate AMC pedigree: It is advisable to check fund house's overall AUM growth, manager experience, and success with similar strategies.
• Assess differentiation: You may confirm if the NFO offers genuine innovation vs. duplicating existing schemes.
• Market timing risks: If an NFO is launched during elevated market conditions, deploying capital at higher valuations may expose investors to short-term volatility if markets correct.
• Fund objective: Check whether the scheme’s stated objective aligns with your financial goals and time horizon.
• Risk level: NFOs with more than 65% equity exposure are classified as high to very high risk, even if they are hybrid funds. Ensure your risk appetite matches this level.
• Taxation: Be aware of the latest tax rules.

Past performance may or may not be sustained in future

While NFOs can provide access to new opportunities, investors should assess a few important factors before committing money.

1. Fund objective: Check whether the scheme’s stated objective aligns with your financial goals and time horizon.
2. Risk level: NFOs with more than 65% equity exposure are classified as high to very high risk, even if they are hybrid funds. Ensure your risk appetite matches this level.
3. AMC track record: Since the scheme itself is new, consider the credibility and past performance of the Asset Management Company (AMC) and its fund managers. However, past performance may or may not be sustained in the future.

Taxation: Be aware of the latest tax rules.

Investment after NFO closure is possible in open-ended schemes and exchange-listed closed-ended funds, but not directly in closed-ended funds post-offer.

• Open-ended funds: Once the NFO subscription window closes and units are allotted, the scheme reopens for continuous purchase and redemption. Investors can start lumpsum investments or systematic investment plans (SIPs) after the fund becomes operational.
• Closed-ended funds: Units are available only during the NFO period. After closure, fresh investments are not permitted until maturity. However, these units may be listed on stock exchanges, where investors can buy or sell them.

A new fund offer (NFO) does not automatically come with a lock-in period. The presence of a lock-in depends on the scheme structure. Investors should check the scheme information document (SID) before applying.

Types of NFOs and lock-in rules:

• Open-ended NFOs: These funds generally do not have a lock-in, and units can be redeemed at any time after allotment.
• Closed-ended NFOs: Investors cannot redeem units before maturity, though they may be able to sell them on stock exchanges.
• Tax-saving NFOs (ELSS funds): Equity-linked savings schemes, even when launched through an NFO, carry a mandatory 3-year lock-in to qualify for deduction under Section 80C of the Income Tax Act, 1961, under the old regime.