New Fund offer
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When units of a Mutual Fund scheme are offered to the public for the first time it is referred as NFO – New fund Offer. It is offered to the public through an offer document which is the most important source of information. It gives information about the type of scheme, investment objectives, investment pattern, fee and expenses, liquidity provisions etc.
The NFO opens on a particular date starting which you can invest and it closes on a particular date up to which you can buy the units. Generally the NFO remains open for a maximum period of 15 days. You will get your units allotted with in 5 business days after the closure.
In a case where the scheme is open ended, the scheme is re opened on a scheme reopening date after which you can sell or repurchase the units of the mutual fund.
What makes NFO attractive ?
- When you buy units in NFO you are buying it at a cheaper price than other existing schemes in the market.
- Units of a NFO are bought with an expectation that the NAV will rise at least marginally from purchase price. Generally it is priced at face value of Rs.10.
What are the shortcomings of NFO ?
- You will not be able to gauge the past performance of the scheme as there is none and it is being issued for the first time
- Expenses of an NFO are bit on the higher side. Hence it is important to check the expense ratio which will eat away your returns
- There may be lock in period for NFOs. If you redeem before the said period you will have to pay a fee which is called as the exit load
When should you choose NFO ?
You should choose to buy units through NFO when you are sure of the investment objective of the fund and your investment horizon matches with that of the NFO.
