Glossary of Mutual Fund Terms
New Fund Offer is like an IPO (Initial Public Offering) except that, IPO is marketed by a company trying to go public while NFO is marketed by a Mutual Fund trying to launch a new scheme. When a Mutual Fund wishes to launch a new scheme in the market, it does so by way of an NFO. The NFO has a start date and an end date. The Mutual Fund advertises about its NFO to the public that includes both prospective investors and Mutual Fund distributors. Subscription or application from investors is invited, to invest in the NFO during the NFO open period. NFO’s are open for subscription for a maximum of 15 days. During this time, the units of the new fund being launched are available at the face value. This means investors can buy units of the new scheme at this face value.
The Mutual Fund uses the capital raised during the NFO to buy securities in the new fund’s portfolio after the NFO has closed. The new fund reopens for further subscription on an ongoing basis, few days after the NFO end date, if the nature of the scheme is open-ended. If the scheme is a close-ended fund, it does not open for further subscription after the NFO is over.