What is New Fund Offer (NFO) - Meaning, Types, Benefits, How NFO Works

Manish Kothari
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Manish Kothari

WHAT IS New Fund Offer (NFO) ?

An NFO (New Fund Offer) is the first subscription offering by an Asset Management Company for their newly launched fund. The NFO period starts when a fund is introduced and launched in the market, thereby allowing the firm to raise capital during the NFO period for purchasing securities. 

An NFO is identical to IPOs. Both of them are used to raise capital for doing further investments and operations. NFOs can be accompanied by aggressive marketing campaigns, created to excite and motivate investors to purchase units in the fund. After being traded publicly, the mutual funds have the potential to offer good returns over time.

How Does it Work ?

In NFOs, the subscription opportunity is available only for a limited tenure. Investors may buy units of the fund scheme during the predefined tenure and subscribe to the NFO at an offer price. This is usually fixed at Rs. 10. Once the tenure expires, the investors would be able to buy the fund units at the NAV rates after the relaunch of the fund in the market.

Types of NFO

The different types of NFOs are mentioned below:

Open-Ended Funds

This fund is officially launched after the NFO terminates. Individuals can enter and exit the fund at any time they want after the launch.

Closed-Ended Funds 

These funds do not allow entry or exit of investors after the NFO period, until its expiry/maturity. The time period often ranges between 3 to 4 years from the date of launch. However, the individuals may purchase and sell the units on the stock exchange, but the liquidity in the market of these funds tends to below. 

Benefits of Investing in NFO

One should go forward with investing in NFOs because of the benefits and merits they possess. These are discussed below:


Close-ended funds also offer flexibility to the investor of when to invest in the market. Even if the timing is not ideal for investment and the NFO is launched at the market peak, the fund manager can hold a part of investors’ funds to invest them later. 

Opportunity to Invest in Innovative Funds:

Many AMCs nowadays are coming up with the idea to invest in innovating fund schemes like the use of hedging strategies, business cycle-based investments, ESG investments, etc. Through NFO, an investor can get an early opportunity to benefit from the same.

Find the NFO Mutual Fund List below : 


Lock-in Support:

Spending time in the market is more important than backing out within a short period of time. Many investors just spend a few years in the market and end up impairing their gains. Nevertheless, the lock-in tenure in NFOs, the closed-ended ones helps investors from indisciplined and hassled investing behaviors.

Also Read: Lock in Period in Mutual Funds

Profit Generation:

As there may exist a significant difference between the NAV and NFO price, it can help the investor to earn good returns on their investments.

Who should invest in New Fund Offer ?

Investors looking for value for money investment alternatives often subscribe to NFOs as they also prefer lucrative options that are available at a cheaper rate. The Asset Management Companies play an important role here as they capitalize upon this opportunity and increase their assets under management.


Both NFO and IPO may seem identical, but it is very important to note that NFO is quite different from IPOs. The latter is the sale of a company’s shares prior to its listing on the stock exchange, whereas NFOs are subscription offerings for mutual funds.  

As dictated by the fundamentals, an IPO may be priced below or above the stock’s real value, but in the case of NFO, this can not be interpreted. The pricing of a mutual fund is simply dictated by the NAV which is the market value of the units it holds. While investing in NFOs, investors need not worry about IPO-like huge price volatility and getting allotment in an NFO.

How to Invest in NFOs ?

There are very simple and easy steps to start investing in NFOs. Follow the below-mentioned steps to start investing:

  1. Download the ZFunds app from the Playstore- Link here.
  2. Create your free account with ZFunds. If you already have an account with ZFunds, you can simply log in to it.
  3. To create an account, you will be required to upload your identification documents which can include an Aadhar card, pan card, Voter ID card, driving license, passport, or any other reliable document which is issued by the state or central government.
  4. You will also be required to upload your address proof.
  5. After that, you just need to go to NFOs Section and opt for the investment in your preferred fund.
  6. And, then, at last, you just need to do the needful payment.

After the successful investment, the units will be allotted and investment will be reflected in 2-3 working days in your ZFunds account.


Fund Objective:

The fund objective tells about the riskiness, asset allocation, returns, etc. among other things about the fund. It helps to build a perception about the viability of the offer. An NFO needs to clearly state and explains its investment process, which it is going to carry out for the given investment time horizon. In easier words, it means that reading the offer document should assist potential investors to understand what the fund managers are willing to do with the funds.

AMC Reputation:

It is of utmost significance to vouch for the background of the fund house. Ensure that the AMC has a strong history of operating in the industry of say at least 7-10 years. It will also assist in analyzing the kind of performance that they deliver during the market volatility. 


It is advised to analyze the past performance based on the NFO’s model portfolio if the investor is willing to invest. The offer document may or may not brief upon this matter. Investors can set an expected rate of return against which they can compare and analyze the fund.


Investing in NFOs can be risky as well. Unlike existing funds, where an investor can readily check the risk involved and asset allocation, NFOs don’t have a performance brief and history. One won’t be able to assess how the fund managers are willing to utilize the money. Without any metrics or benchmarks, it is very difficult and complex for investors to predict the fund’s performance. 

Cost of Investment:

The total cost involved in investment is one of the parameters that assist in deciding the potential returns. Though there is no such entry load, some NFOs may levy exit load if investors redeem the units before the completion of a specified tenure. The expense ratio is another crucial parameter to consider.

More Information:

Long Duration Debt Funds
Conservative Hybrid Funds
Growth Funds
Index Funds
Alternative Investment Funds
Expense Ratio in Mutual Funds
Liquid Funds
Hedge Funds

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