NFO and it's Advantages

Published By:- 

Anand (B.Tech, M.Tech, MBA Finance) 

Mob :- 9415283904

NFO (New Fund Offer) in Mutual Funds. and it's Advantages

A new fund offer (NFO) is a process through which mutual fund companies offer new mutual fund schemes to the public for the first time. It is a process by which a new mutual fund scheme is launched, and investors can subscribe to it during the subscription period. NFOs offer investors the opportunity to invest in a new mutual fund scheme at the initial offer price.

Advantages of New Fund Offer:

1.   Lower Initial Investment: One of the biggest advantages of investing in an NFO is that investors can buy the units of the fund at the initial offer price. This means that investors can invest in the mutual fund scheme at a lower price than the market value.

2.  Diversification: NFOs often offer a new theme, sector or investment strategy that may not be available in existing mutual fund schemes. By investing in an NFO, investors can diversify their portfolio with a new theme, sector or investment strategy.

3.   Potential for Higher Returns: Investing in an NFO can provide the potential for higher returns, as the fund manager has a clean slate to invest in stocks or bonds, unlike existing schemes that may already be fully invested.

4. Attractive Offers: Mutual fund companies often offer attractive offers and incentives to investors during the NFO period, such as a waiver of entry load or a discount on the initial offer price.

Example:

5.   Let's say a mutual fund company launches a new fund called "ABC Equity Fund" and offers investors the opportunity to invest in the NFO. The NFO has a subscription period of 15 days, during which investors can invest in the fund at the initial offer price of Rs. 10 per unit. After the subscription period, the fund will be listed on the stock exchange and the units can be bought or sold at the prevailing market price.

6.   Suppose an investor subscribes to the NFO and invests Rs. 10,000 in the ABC Equity Fund at the initial offer price of Rs. 10 per unit. The investor will get 1,000 units of the fund. After the subscription period, the market price of the units may go up or down depending on the demand and supply of the units. If the market price of the units goes up to Rs. 12 per unit, the value of the investor's investment will be Rs. 12,000, resulting in a profit of Rs. 2,000.