What is an NFO?

Updated on: Jan 13th, 2022


9 min read

The Asset Management Company or AMC offers subscribers the opportunity to invest in a new mutual fund scheme through the New Fund Offer or NFO. The mutual fund house offers units of a new mutual fund scheme through the NFO. 

NFOs are similar to Initial Public Offerings or IPOs of private companies where firms offer their shares to the public for the first time. However, while the funds raised through IPOs are used to expand the business, mutual fund houses use the money pooled from the subscribers in their NFOs to purchase stocks, bonds or other securities and construct a portfolio in line with the investment objectives of the fund. 

AMCs generally launch NFOs at Rs 10 per unit of the new mutual fund scheme. The NFOs are open for subscription only for a specified time where investors can subscribe to units of the new mutual fund scheme at the offer price of Rs 10. However, investors can purchase units of the NFO even after the NFO period at a price that is usually higher than the offer price. 

What are the different types of NFOs?

NFOs are generally categorised as open-ended funds and close-ended funds. 

Open-ended funds:

Investors enter and exit the units of the new mutual fund scheme launched through the NFO at any time if it’s an open-ended fund. People can subscribe to the open-ended new fund scheme units when the NFO is open for subscription, usually for Rs 10 per unit. However, you can even buy units of the open-ended fund post-NFO at the current market Net Asset Value (NAV). 

For example, suppose you invest Rs 500 in an open-ended mutual fund scheme XYZ during the NFO period. It is launched for Rs 10 per unit, and you procure 50 units. The mutual fund house constructs the portfolio of the new mutual fund scheme after the NFO period. 

Suppose on fund activation after the NFO period; the NAV rises to Rs 15 depending on the performance of the underlying securities. Investors would have to purchase new units or sell existing units at this price. 

Close-ended funds:

AMCs offer only a fixed number of units of close-ended funds during the NFO period. Moreover, you cannot purchase units of the new close-ended fund launched through the NFO after the offer, similar to open-ended funds. The close-ended fund has a fixed maturity period, and you can exit the investment only after this period. 

However, the AMC lists the units of the close-ended fund on the stock exchange, such as NSE and BSE, to enhance liquidity, and you can buy or sell units through this route after the NFO offer period. The NAV of the close-ended fund listed on the stock exchange moves in line with its units’ overall demand and supply. Moreover, units may trade at a premium or discount to the NAV of the close-ended fund. 

How is an NFO a good opportunity?

Investing in an NFO may offer investors exposure to a new investment theme or idea. Moreover, you must check if the relevant investment theme can do well over some time. NFOs offer investors the opportunity to profit from a unique investment theme at an early stage. 

Invest in NFOs that give you exposure to mutual funds that you lack in your portfolio. For instance, experts recommend having at least 10% of your equity portfolio in foreign stocks to diversify your portfolio beyond Indian stock markets. Investors can invest in NFOs of index funds that mimic the portfolio of foreign stock market indices such as the Nasdaq 100 and the S&P 500. 

How to invest in an NFO?

Invest in NFOs through the online or offline route as per your convenience: 

Offline route:

Invest in NFOs through a mutual fund distributor or broker. The mutual fund broker helps you fill all relevant forms and submit documents when investing in the NFO. Invest in NFOs through the mutual fund broker if you prefer offline investing and information on the mutual fund launched through the NFO. 

Online Route:

Invest in NFOs online through your Demat and Trading Account. Moreover, you can also invest in NFOs through mutual fund platforms where you can buy and sell units from the comfort of your home. It helps select NFOs that are open and invest in them by placing your order. 

Through the BLACK by Clear app 

Download the BLACK app on Google PlayStore to invest in NFOs.

  • Open the BLACK app, and you will see a section called Invest in NFO’s LIVE.
  • Press on this section to see the latest NFOs launched by different AMCs and are currently open for investment.
  • Touch the NFO that interests you on the screen to instantly get the offer price, launch date, last date to invest, and allotment date.
  • Check the risk, lock-in period, fund manager, exit load, expense ratio and other charges applied on mutual funds instantly to gauge the NFO.
  • It helps to study the track record of the AMC launching the NFO and similar funds before investing in the NFO.
  • Press Invest Now and choose either the Monthly SIP or the One Time option to commence your NFO investment. 
  • The minimum investment is displayed under both options, and you must choose the investment date if you opt for monthly SIP.
  • Finally, pick the preferred payment option such as UPI or Net Banking to make your payment to commence investing in the NFO. 

Things to keep in mind when investing in an NFO?

Check the expense ratio:

AMCs spend a lot of money on advertising and marketing campaigns for their NFOs. It may result in a higher expense ratio which is the cost of managing the fund compared to the existing mutual fund schemes. Moreover, Investing in a mutual fund scheme with a higher expense ratio would reduce your take-home return over time. 

No track record:

AMCs pool funds from subscribers to buy stocks, bonds, or other securities in line with the fund’s investment mandate through their NFOs. It means the AMC constructs the portfolio after the NFO period, and you don’t have a track record of measuring the performance of the new mutual fund scheme launched through the NFO. 

Experts recommend investing in equity funds only after studying their performance over a few market cycles against peers and the benchmark. It is better to settle for an existing mutual fund with the same investment mandate and a track record of performance over some time rather than risk your money in a new mutual fund scheme. 

NFO is not cheap at Rs 10:

Many people believe NFOs are a bargain investment as they are launched at a NAV or price of Rs 10. However, the returns delivered by an existing mutual fund and the new scheme launched through NFO would depend on the performance of stocks in their portfolio over time. 

The NFO is not cheap because it was launched for Rs 10. The AMC has yet to build the portfolio of the new mutual scheme, and you don’t have a track record of measuring the fund’s performance. It helps to opt for an existing mutual fund scheme that has done well against the benchmark and peers and has a lower expense ratio as it is already a proven performer over time. 

Check the Scheme Information Document (SID)

Invest in the NFOs only after doing the research. It helps to look through the Scheme Information Document (SID), which displays the investment strategy, fund manager profile, asset allocation pattern and benchmark index. Check the statement of additional benefits (SAI), which shows you extra information about the AMC.

It helps to pay close attention to the investment thesis of the mutual fund scheme, which you get from the Scheme Information Document. Investors can gauge the investment objectives of the new mutual fund launched through the NFO. It also helps to study where the mutual fund plans to invest your money depending on the type of fund. 

Take a look at the stock selection approach of the mutual fund before investing in an NFO of an equity mutual fund scheme. It helps you understand why the AMC has invested in the particular stock for its mutual fund scheme portfolio. 

Benefits of investing in an NFO

Invest in a unique theme:

In new mutual fund schemes through NFOs exposes you to a novel investment idea or theme, which may do well over time. For example, an AMC may launch an NFO with the ESG (Environmental, Social, and Governance) theme. Investors can invest in the NFO if it matches their investment objectives and risk tolerance and if research shows ESG themes to be profitable over time. 

Opportunity to add an investment your portfolio lacks:

You may invest in an NFO of a new mutual fund if it offers exposure to an investment your portfolio lacks. For instance, you could consider an NFO in index funds with exposure to foreign stock market indices if you want to add foreign stocks to your portfolio. 


NFOs in close-ended mutual fund schemes benefit from flexibility as investors cannot exit easily post the NFO period. The fund manager can hold on to funds even if the stock market crashes, thereby aiding better investment decision making. However, open-ended mutual fund schemes are impacted by large inflows or outflows from the fund, especially during extreme volatility in the stock market. 


  • Invest in NFOs with unique investment ideas or themes. 
  • Invest in NFOs if you need a particular investment which your portfolio lacks.
  • Don’t invest in NFO just because the AMC offers it at Rs 10
  • Earning listing gains from NFOs is impossible as the AMCs will create more units if there is excess demand from subscribers. 
  • The mutual fund builds the portfolio of the new scheme launched through NFO after the offer period.

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Quick Summary

Asset Management Companies offer New Fund Offers (NFOs) for investors to subscribe to new mutual fund schemes. NFOs are similar to Initial Public Offerings (IPOs) for private companies. Investors can opt for open-ended or close-ended NFOs to purchase units at the offer price of Rs 10 per unit. Investing in NFOs provides exposure to unique investment themes and opportunities to diversify portfolios.

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