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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
What is a New Fund Offer (NFO) of a Mutual Fund? How does it work?
In Mutual Funds
1 answer/comment
09:25:16 AM, 7th February, 2019
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka
    Profile

    NEW FUND OFFER (NFO)

    A New Fund Offer or NFO is comparable to Initial Public Offering (IPO) of a company. In NFO an Asset Management Company (AMC) reaches out to the general investors with the units of a new scheme. NFO is offered for a limited period and the units are offered at a fixed price (generally Rs. 10 although there is a minimum subscription amount) in this period only. After the NFO, investors have to buy the units in the prevailing NAV.

    AMCs launch NFO to arrange funds for buying securities of the scheme. Fundamentally, a scheme does not exist before the NFO from an operational point of view. This is where an NFO is different from an IPO. In case of most companies, the company operations exist before the IPO. So, it is possible to get information regarding the financial performance of a company before IPO. But, there is no performance data for a mutual fund scheme before the NFO.


    In the case of Open-Ended funds, NFO is the beginning of a scheme. As Open-Ended funds do not limit the number of units issued, investors can purchase units during and after the NFO directly from the AMC through their brokers.


    In case of Closed-Ended Funds, NFO is the only time the AMC sales units. The scheme gets listed on the exchange to provide liquidity to the investors.



    REGULATIONS

    Mutual Funds are regulated by SEBI (Mutual Funds) Regulation,1996. As per section 28 of this act, any scheme has to be approved by the trustees before launch and a copy of the NFO has to be submitted to SEBI.

    Only if SEBI does not ask for any modifications in 21 working days, the AMC can launch the NFO.


    SEBI Requires that the NFO document must contain enough information to facilitate the investors to make informed decisions (section 29).

    The advertisement of the NFO is guided by section 30 and the Sixth Schedule (Advertisement Code) of the act. The advertisements cannot be misleading and exploitative of the inexperience of the investors. The advertisement must contain the Investment Objective of the scheme.



    HOW TO KNOW ABOUT NFO?

    An investor may know about the current active NFO from the AMFI website. Find the link below

    https://www.amfiindia.com/new-fund-offer

    Other than that, every AMC lists the NFOs on their websites.

    For example, SBI - https://www.sbimf.com/en-us/new-fund-offer
    ICICI Prudential - https://www.icicipruamc.com/icici-prudential-mutual-fund/NFO.aspx


    You can invest in the NFO directly through the AMC website.



    Related link:

    https://www.sebi.gov.in/acts/mfreg96.html

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