What are New Fund Offers (NFOs)?
A New Fund Offer (NFO) is like the starting point of a new mutual fund. When a mutual fund company wants to launch a new fund, they invite people to invest through this special offer. It’s similar to an IPO in the stock market but involves mutual funds instead of company shares.
During an NFO, investors can buy units of the mutual fund at a fixed price, usually Rs.10 per unit. The money raised is then used to invest in things like stocks, bonds, or other securities. These funds can be open-ended (where you can buy or sell units any time after the NFO) or closed-ended (where buying is limited to the NFO period).
How NFOs Work
- Limited Time Period: SEBI rules allow an NFO to stay open for up to 30 days*.
- Investing After NFO: Once the NFO ends, the mutual fund trades its units based on the Net Asset Value (NAV), which changes according to the fund’s investments.
Why Invest in an NFO?
Investing during an NFO can be attractive because units are priced low at the start. Over time, if the value of the mutual fund grows, you can earn gain. For example:
- If you buy 100 units at Rs.10 each during an NFO, you invest Rs.1,000. Later, if the NAV rises to Rs.12, your investment becomes worth Rs.1,200.
Types of NFOs
- Open-Ended Funds: Investors can buy or sell units anytime.
- Closed-Ended Funds: Investors can purchase units only during the NFO and trade them later in the market.
Example
If Monica invests Rs.500 during an NFO and buys 50 units at Rs. 10 each, her investment value increases to Rs.1,000 when the NAV reaches Rs. 20. This shows how NFOs can help grow your money over time.
With proper research and guidance from a mutual fund distributor, NFOs can be a great way to start your investment journey!
All of the above information is provided solely for educational and illustration purposes only.
