Table of Contents
What is NFO?
NFO or New Fund Offer is an investment company’s first or initial subscription offer, inviting investors to invest in their newly launched funds.
Like an IPO or Initial Public Offer, it is an invitation to subscribe for shares issued or listed on the market for the first time. NFO is similar but for the subscription of new funds. Generally, Mutual Funds are offered in an NFO for first-time investment. The purchasing offer depends on the structure of the new fund or the securities included in the fund.
One crucial point here is that, unlike the IPO that is issued by the company whose shares are being offered, it is an investment company that offers the NFO. An investment company generally offers funds, and these companies target only potential investors. Therefore, NFOs are not marketed as aggressively as it is in the case of an IPO.
However, NFO is also similar to an IPO as they are both targeted toward raising capital.
How to Trade NFO?
The new funds offered in an NFO are generally provided for investment and not for trading. Moreover, NFOs like mutual funds are not traded on an exchange. Therefore, it is not possible to trade such funds.
Actively trading NFO can be a less promising approach. One of its reasons is that it is difficult to find a potential buyer of the new funds in the market during the NFO period. Even if a trader is able to find some investors, the transactions may not create expected profits.
How to Invest in NFO Online?
To invest in an NFO online, an investor needs to have an active online trading account. If they do not have one, the first step is registering for one. Then, investors have to look for an NFO being offered through the press releases of different investment companies. Select the NFO and the funds you want to invest in, and complete the payment.
Before investing in a New Fund Offer, it is essential to find out all the details about the fund, like its expense ratio. An investor can do so through the investment company website. It is also important to know more about the company offering the NFO and how the other funds provided by it have performed.
What is the Benefit of NFO?
Funds offered in an NFO, like Mutual Funds, generally involve securities with future growth prospects. These securities come from the new emerging sectors. Therefore, if an investor plans to diversify their investment portfolio, they can do so by investing in an NFO.
An important fact to note here is that an NFO is an investment fund with no performance background. Therefore, the risk involved is higher as there is no proof of how the funds will perform in the market. Also, the sector that has been performing better at present doesn’t mean it will generate profitable results in the future.
Which NFO is the Best Investment?
There is no surety of the performance of a particular fund or security in the market. Therefore, it cannot be stated that a specific NFO is best for the investment.
The market is unpredictable, where even the best performing securities can sometimes give the worst outcomes, while the assets performing the worst can take a steep uptrend. The same is the situation with New Fund Offers. NFOs, like Mutual Funds or ETFs, include securities of different classes that are volatile. Therefore, a particular type of NFO cannot perform well consistently.
Investors can look for an NFO with a low expense ratio. They can also research the performance of previous funds offered by the company offering the NFO. This will not ensure a growth prospect but will help the investor understand the risk involved.
What Happens after NFO?
An investment company opens the NFO scheme, especially the closed-end funds, for a particular period. After the end of the period, the units of the funds are allotted to the investors.
After an NFO is launched, it is open for investment for a certain period. The company managing the funds uses the investors’ funds to buy securities like stocks, bonds, or equity. Generally, the units of NFO are allotted to the investors within five days of the closing time.
Can I Sell NFO?
If an investor wants to sell the NFO, it is imperative to know that not all types of NFOs can be sold actively after they are launched for the subscription.
There are two types of New Fund Offer; Open-End Funds and Closed-End Funds. The Open-End Funds do not have a limit to the number of shares and can be brought and sold actively through a broker after their launch date. Whereas, Closed-End Funds are released in a limited number and can only be sold after the end of their NFO period.
Does NFO have Listing Gains?
Once the NFO period has ended, the investors can purchase the units of the NFO at NAV (Net Asset Value). The allotment or issuance of NFO is generally done after five days from the end of the subscription period. There has been evidence that many investors have gained from the listing of NFOs.
Since NFOs are newly launched funds that involve securities with excellent future prospects, many investors are tempted to invest in such funds. The funds may perform better after their listing, as they may remain in demand at least for a short period. However, that doesn’t guarantee the long-term profitability of the funds. Investors are advised to rely on their analytical thinking and strategy before investing. They must know about the potential risks of such investments and consider if they are willing to take such risks or not.
How is NFO Issued?
There is a launch date when the NFOs are open for subscription. The period for subscribing to an NFO is limited, and investors planning to buy a unit of NFO must do that before the end of the subscription period. Once the period is over, the allotment of the units of the funds is generally done within five days by the funds issuing company.
An important note here is that only the closed-end funds are the ones that are open for subscription for a limited time and are issued after the end of that period, unlike closed-end funds that can be brought and sold at any time.
How Do I Apply for NFO?
Investment in NFOs can be made both online and offline. The only task of an investor is to look for an open scheme for an NFO. They can do this by visiting the investment company website and looking for press releases regarding the same. Companies may also advertise such offers in a news outlet.
If investors are planning to apply for an NFO offline, they can do so with the help of a brokerage. If the investment is to be done online, the investor must have an online trading account. In both ways, investors have to fill out an application form and wait for the subscription period to end before they can purchase the units of the NFO.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
