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What are NFO or New Fund Offer?

What exactly is an NFO and should I invest in NFO?

Kavita Soni

New Fund Offers as the name suggests are the fund offers which are launched in the market when a fund goes public to raise capital from retail investors or other private institutions. Need of an NFO generally arises when banks cannot lend sufficient amount of money required by the firm. In terms of closed-end funds, once the NFO period is closed, the investors are not allowed to purchase or sell units of the particular fund until its maturity period comes to an end while in open-end funds, buying and selling is permitted at any point of time.

Do not confuse NFO with IPO as IPO is also introduced when a company goes public to raise money. IPO is Initial Public Offering which involves first sale of stock by a company into the public. NFO is the first issue of units of a mutual fund to investors. Through IPO, as an investor, you gain ownership in the company using its shares but through an NFO, you gain a portion of a mutual fund scheme and no ownership of the company whose fund units you have bought.

Some of the best new fund offers in India include Axix Multicap Fund and IDBI Focused 30 Equity Fund. For more information on NFOs, click here.


A New Fund Offer (NFO) refers to a situation when a new mutual fund is launched and offered to the public before it opens up for daily transactions. Its working is similar to that of an IPO in the sense that both are first open to public in order to raise capital before further operations.

NFOs are open for investment at the offer price (usually Rs.10 per unit) for a limited time only, post which the investors have to invest at the prevailing Net Asset Value (NAV). An NFO is usually launched by a fund to complete its product basket or when there is investor demand for a particular theme. It has also been observed that an NFO is usually accompanied by aggressive marketing campaigns in order to grab attention of investors and convince them to purchase units of the fund.

Many investors subscribe to NFOs since its NAV is fixed at Rs.10 for the particular time period, and is considered to be cheap compared to the time they start their daily operations. However, there is a greater risk involved in NFOs since a lot is not known about the scheme including what the portfolio will look like, the assets it will gather and the past performance of the fund. Therefore, NFOs should be invested in only if they offer something different from the existing funds. 


When mutual funds are launched in the market, to raise capital from the public, a NFO or New Fund Offer is launched. Therefore NFO is defined as the first time offer extended to the public to invest their money in the mutual fund. After NFO, the mutual fund opens up for daily transactions. NFO is similar to IPO. Both are used to raise capital for further operations.

Every NFO contains prospectus which contains information regarding the mutual fund, that is, why the fund is launched, which securities is the fund planning to invest in, what are the expected returns.The raised capital is used by the mutual fund company to invest in stocks, bonds, commodity, etc. of various companies in various sectors.

New fund offers are aggressively marketed by the mutual fund company to attract investors to purchase units in the fund.

There are a number of factors, such as risk taking ability of investors, type of mutual fund, investor's objective, etc., that an investor should consider before investing in NFO. It is risky to invest in NFOs as these do not have any past track record of performance.

The various factors that an investor can look at are:

-Performance of the AUM company

-Fund manager's performance of handling various other funds

-How well similar mutual funds have done in the market

-Structure of the fund house

-Asset allocation the mutual fund- How risky the fund is and on the basis of risk appetite of the investor, take the decision of investing

Investments in NFO's carry high risk but if they are carefully selected and analysed, investors can benefit from the growth of the mutual fund.

Arpit Chandak

NFO or New Fund Offer is the first time subscription offer to the investors launched by the mutual fund companies. It is launched in the market to raise capital from public before it opens up to the daily transactions and in this aspect it is similar to the IPO (Initial Public Offering).

The mutual fund companies invest the capital raised from NFOs in stocks, bonds, commodity, etc.  NFO comes with a prospectus and within it contained all the information about the fund - what are the securities fund is planning to invest, what are the expected returns it will be providing to the investors and the rationale behind the launch of the fund.

Few years ago, when stocks IPO were offered at discount to the people who people considered the fair value of the stock and once they are established on the secondary market, they are traded at premium price. This created an excited among investors and same applies in case of mutual funds’ NFO. NFOs are marketed aggressively by the mutual fund companies to attract the investors.

Should I invest in NFO?

Whether one should invest in NFOs depends on a number of factors such as the value proposition offered by the NFO, risk taking ability of investor, fund house, etc. Their point of difference from the existing fund is that existing funds have a track record to show for whereas NFOs are absolutely new into the market. Hence, investing in NFOs always accompanies higher risk.

NFOs are offered at the absolute price (Rs. 10 mostly) and investors can pool in their money for a stipulated time only. However, the investing decision should not be based on Rs.10 offering, other factors should be given importance. After the NFO period is over, the fund units are offered at the current NAV price only.  

The other factors considered before investing are the structure of fund house – is it fund manager driven or team driven, performance of similar schemes and the other processes followed by the fund house.  The NFO that is going to add value to your portfolio should be valued i.e. an NFO which is distinct from your existing schemes in the portfolio to minimize the risk and diversifying the portfolio.

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