Shri Sayan Das Sharma joined the AMC on 02 November 2022 as Senior Business Analyst. Prior to joining the AMC, Shri Sayan Das Sharma was associated with Arthya Wealth & Investments (PMS) from April 2021 to October 2022. Before joining Arthya Wealth & Investments (PMS), he was also associated with Bank of Baroda Capital Markets Ltd from November 2018 to March 2021. He was also associated with Crisil Limited from September 2011 to October 2018. He has work experience of over 14 years in financial markets in Research area.
An NFO, or New Fund Offer, may be a suitable way to explore a new mutual fund scheme. It gives you the opportunity to be a part of the scheme right from its launch. NFOs may also allow you to explore new themes, sectors, and strategies. They may serve as an investment option for anyone looking to diversify their portfolio.
Here’s a step-by-step guide to invest in an NFO
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A new fund offer (NFO) is the initial subscription window opened by an Asset Management Company (AMC) to launch a new mutual fund scheme. Similar to an Initial Public Offering (IPO) in the stock market, an NFO allows investors to buy units of a scheme when it is introduced. NFOs are regulated by the Securities and Exchange Board of India (SEBI). In this article, we will explore in detail the different aspects of NFOs to help you make informed investment decisions.
The purpose of new fund offer is to introduce new investment opportunities, such as a specific sector fund, thematic strategy, or a different asset allocation approach. Unlike existing schemes, NFOs do not have a performance track record, which makes evaluation based on other factors important.
During this period, investors can subscribe to the scheme at an initial price or face value, which is usually Rs. 10 per unit in case of equity schemes and Rs. 1000 per unit in case of debt schemes. Once the NFO period closes, the scheme either becomes open-ended, allowing continuous purchases and redemptions, or closed-ended, with a fixed maturity period.
NFOs may be suitable for investors who want to access new themes or strategies. However, since there is no historical performance data, the evaluation should be based on the fund’s objective, portfolio strategy, and AMC’s track record. However, please note that the past performance may or may not be sustained in future.
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:
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, 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.
After allotment, the units will reflect in your mutual fund account or demat account, and the scheme will function like any other mutual fund scheme post-NFO.
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:
Performance history:
NFO: No past performance record since it is newly launched.
Existing scheme: Has historical returns, risk indicators, and portfolio data for evaluation. However, past performance may or may not be sustained in the future.
Pricing:
NFO: Units are initially issued at a face value, usually Rs. 10 per unit in case of equity schemes and Rs. 1000 per unit in case of debt schemes
Existing scheme: Units are available at the current net asset value (NAV), which reflects ongoing market performance.
Decision-making factors:
NFO: Requires reliance on the AMC’s track record*, scheme objectives, and portfolio strategy.
*Existing scheme: Enables comparison with peers based on past performance and consistency.
*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:
Nature of investment:
NFO: Involves pooling investor money into a mutual fund scheme managed by an Asset Management Company (AMC).
IPO: Represents the first-time sale of a company’s shares to the public, giving investors part ownership in the business
Price and valuation:
NFO: Units are offered at a face value (Usually Rs. 10 each in case of equity schemes and Rs. 1000 per unit in case of debt schemes) with future value linked to net asset value (NAV).
IPO: Share prices are based on company valuation, business prospects, and market demand.
Returns:
NFO: Potential returns depend on the scheme’s portfolio performance and the fund manager’s strategy. Past performance may or may not be sustained in the future.
IPO: Potential returns depend on the company’s financial growth, profitability, and stock market movements.
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.
The NFO (new fund offer) period is the limited subscription window during which investors can apply for units of a newly launched mutual fund. The duration of this period is not the same for all schemes and is determined by the Asset Management Company (AMC) in line with regulations set by the Securities and Exchange Board of India (SEBI).
Factors influencing the NFO period:
Type of scheme
Fund strategy
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.
The NFO (new fund offer) period is the limited subscription window during which investors can apply for units of a newly launched mutual fund. The duration of this period is not the same for all schemes and is determined by the Asset Management Company (AMC) in line with regulations set by the Securities and Exchange Board of India (SEBI).
While NFOs can provide access to new opportunities, investors should assess a few important factors before committing money.
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.
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:
There is no single NFO that can be called the best. The suitability depends on your financial goals, risk appetite, and investment horizon.
NFO and SIP serve different purposes. NFO is a new fund offering available during a launch period, while SIP is a method of investing regularly in any mutual fund.
To choose an NFO, study the scheme information document for details like investment objective, strategy, risk level, and expenses. Assess whether it complements your existing portfolio and aligns with your goals.
During the subscription period, NFO units are usually offered at a fixed price of Rs 10 each in case of equity schemes and Rs. 1000 per unit in case of debt schemes. After allotment, the net asset value (NAV) is calculated by dividing the fund’s total assets minus liabilities by the number of outstanding units.
When the subscription period of an NFO closes, the fund collects investor money and invests in securities as per its stated objective. For open-ended schemes, trading starts after allotment and units can be redeemed or purchased later. For closed-ended funds, units are locked until maturity and listed on exchanges.
The Securities and Exchange Board of India (SEBI) allows a maximum of 15 days for NFOs of open-ended schemes, except ELSS.
If an NFO application is not allotted due to rejection, or technical reasons, the application amount is refunded to the investor’s bank account.
A new NFO mutual fund can benefit investors seeking exposure to new themes, sectors, or investment strategies not available in existing funds.
For open-ended NFOs, you can withdraw money by redeeming units after the fund reopens for ongoing subscriptions and redemptions. In closed-ended NFO mutual funds, withdrawal is not allowed until maturity, though units may be sold on exchanges as same are mandatorily listed on stock exchanges. Liquidity depends on the scheme’s structure and regulatory guidelines.
Yes, NFO returns are taxable like any other mutual fund. Taxation depends on whether the fund is classified as equity or non-equity.
To decide on investing in an NFO, evaluate the fund’s objective, strategy, asset allocation, and risk level. Consider if it adds value to your existing portfolio and aligns with your financial goals. Since past performance is unavailable, the fund house’s credibility and scheme structure become important factors to review.
If the NFO is open-ended, units can be sold after the scheme reopens for ongoing redemption and purchase. For closed-ended NFOs, units cannot be redeemed before maturity but may be sold on stock exchanges as same are mandatorily listed. The process depends on the type of fund structure chosen.
Tracking upcoming NFOs can be beneficial for investors who want to explore new schemes aligned with their financial goals, strategies, or sectors not covered by existing funds. This may help you invest in an upcoming NFO that aligns with your portfolio.
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