What is NFO?
NFO or New Fund Offer is an introductory offer of a scheme by an asset management company. To understand NFO meaning completely you need to understand the basic working of it. A new fund offer is raised when a fund is launched in the market, it is usually done to raise capital for purchasing securities. To subscribe to NFO an investor has only a limited period. The NFOs are functional on the first-come-first-serve basis. An investor can also choose to invest in the mutual fund scheme at an offer price. The price of a fund can be as low as Rs 10 per unit, and once the limit time expires, the units fund can be purchased at an offer prevailing at the point in the time. A new fund offer is mainly considered to be similar to an initial public offering, but they are two different things. But before we dive into differences, let's learn more about NFO.
Types of NFO
There are two types of new fund offers:
One-ended Funds: The offer that is offered after the NFO ends is known as one-ended funds. Investors have the freedom to enter and exit the fund at any time after the launch.
Close-ended Funds: In close-ended fund, an individual is not allowed to enter and edit after the NFO period, an individual has to wait for maturity. The maturity time typically varies between 3-4 years from the date of launch. Also, investors are allowed to buy and sell the unit of NFO funds on the stock market in theory but the liquidity of funds in the market is fairly low.
What is NFO trading, and why invest in NFO?
Investing in New Fund Offer has many advantages, at Tradebulls we offer you complete consultation on NFO trading. Here are a few advantages of investing in NFO:
- New Strategies: Now that you are familiar with the types of NFO, you can make a good choice about what will be beneficial for you. Like here, the close-ended funds offer you an opportunity to invest in new and innovative strategies while the existing open-ended funds do not. But you can only invest in the funds in the NFO period.
- Flexibility: Close-ended funds have the flexibility to invest your money in the market. In other words, you can invest when the fund is launched at a market peak, the fund manager can hold to your funds and invest some of them later. This way you have the flexibility to manage your funds, investments and gain higher profitability in the share market.
- Freedom: Now coming to open-ended funds; these types of funds are highly vulnerable to large inflow and outflows in the market. A little outflow might cause a fund manager to sell the stocks at low prices, causing loss of money at all the positions in the fund. While the close-ended funds are locked in for the tenure of the fund and manager can focus on stock selection and monitor their investments. An individual can only invest in a close-ended fund through an NFO.
- Lock-in Support: For better returns, the time spent in the market should be considered more important than the time in the market. most of the equity fund investors stay invested for only two years in the market which is can affect the returns. The lock-in provided by close-ended funds of 3-4 years acts as a brake, thereby preventing investors to make any bad investments.
Difference between NFO and IPO
An IPO is the sale of a company’s share before its listing in the stock market, while NFO is an offer of a mutual fund scheme unit. An IPO price can be above or below the stock’s real value as dictated by fundamentals. In that case, an NFO cannot be interpreted. The price of NFO is dictated by the market value of the units it holds, which is also known as net asset value or NAV. This right during the valid period of NFO and even after the fund is launched. While investing you do not have to worry about IPO like huge price flux and getting allotment in NFO.
How to invest in an NFO?
Investing in NFO can be new for any individual the task requires them to complete a KYC and to gain profitability in the market you need to be well informed about the market trends and have the ability to predict any market momentums. For you to be completely sure about your investments, you can seek advice at Tradebulls where we guide you right from the first step to last to help you gain an advantage in the market.