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NFO Mutual Fund: Whether to Invest or Not?

Updated on October 20, 2021 , 3315 views

NFO mutual fund or New Fund Offer mutual fund is a new scheme launched by an Asset Management Company (AMC). These funds can either be open-ended or close-ended. Fund houses introduce new mutual fund schemes to augment their Assets Under Management (AUM).

NFO Mutual Funds are launched when the financial markets are performing well as individuals sense an opportunity of earning additional Income and invest in various financial avenues like mutual funds, equity shares, and Bonds. Taking advantage of this situation, AMCs introduce new mutual fund schemes.

So let us go through the various aspects of NFO mutual fund like what is an NFO mutual fund, the difference between NFO and IPO, reasons for why not to invest in an NFO mutual fund, and other related aspects.

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New Fund Offer or NFO Mutual Fund Meaning?

As mentioned earlier, NFO mutual fund means a mutual fund scheme collecting maiden subscription from the public. These new fund offers are launched by the AMC after considering the modalities and financial viability. AMCs introduce new fund offers for a group of individuals having the same set of requirements. For instance, assume a fund house has different categories of equity mutual funds like large cap Equity Funds, small cap equity funds, and mid-cap equity funds. However, after conducting a market research, it is found that there are a group of individuals interested in a specific type of mutual fund that contains shares of large cap and small cap companies. In order to cater to such individuals, the AMC would introduce a new fund scheme, termed as NFO Mutual Fund. The NFO mutual fund is launched to target a specific segment of customers and the subsequent need that exists.

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How to Invest in Mutual Funds NFO or New Mutual Fund Offer

Investing in a Mutual Fund NFO or new Mutual Fund offer is possible during the subscription period of 15 days. Earlier this period used to be 45 days. Investors depending on the choice given by the fund house can invest a lumpsum or even do a SIP. Investing in an NFO should be done after doing a thorough analysis.

Mutual Fund Investment in NFO Mutual Fund?

Often, investors are confused on whether to invest in an NFO mutual fund. So let us look at the aspects on why not to invest in NFO mutual funds.

No Proven Track Record

NFO mutual funds being new, do not have a past performance record to determine their future performance. However, this becomes easy in case of an existing fund whose past data is already available.

Mutual Fund Charges

Newly launched mutual fund schemes in most cases have an initial expense and also marketing expenses, these are covered via the fund running expenses or the management fee. Resultantly, it can impact the performance of the fund as the effective return for the investors reduces. In contrast, in the existing fund, the mutual fund charges are generally lower.

Limited Diversification

NFO mutual funds in most situations are sector specific or category specific. Hence, they have limited scope of diversification and are not able to enjoy the benefits of diversification. Individuals should always consider the investment benefits properly before investing in any newly launched fund to minimize the losses.

Not Cheaper as Compared to Peer Funds

One of the biggest misnomers when it comes to investing in NFO mutual funds is that they are cheaper as compared to their peer funds. The performance of any mutual fund depends on the value of the underlying assets it holds. Thus, better the performance of the underlying assets, higher the NAV.


The rationale behind investing in an NFO mutual fund is the uniqueness of the scheme. Individuals can invest in a new scheme if it is distinct from the existing ones. For instance, assume a fund house launches a mutual fund scheme which will invest its corpus in international commodity markets. If such schemes are not available, then individuals invest in this scheme for its uniqueness. In addition, individuals invest in NFO mutual funds considering the reputation of the fund house and the fund manager managing the underlying fund.

NFO Mutual Fund and IPO

Though the concepts New Fund Offer (NFO) for a mutual fund and Initial Public Offer (IPO) for a company seem to be identical, however, they differ from each other. IPO means a company raising shares (direct equity) from the public for the first time. The company while going public needs to submit all its credentials like past performance, future growth prospects and other factors through their prospects. In IPO, individuals get shares of the company against their money paid.

On the other hand, NFO is an investment in a new mutual fund scheme which in turn invests the money in stocks and bonds based on a specific strategy. During the subscription period of the NFO mutual fund, the mutual fund does not hold any investment, there is no portfolio. Here, the scheme allots units to its investors at 10 rupees per unit. The NFO mutual fund invests the money collected in various financial instruments in-line with its objectives. Based on the performance of these underlying portfolio, the Net Asset Value (NAV) of the mutual fund tends to increase or decrease.

Before launching an NFO mutual fund, the AMC has to complete all the formalities and seek approvals from the concerned governing bodies like Securities and Exchange Board of India so that the process becomes smooth.In a nutshell, it can be concluded that any individual planning to invest in any NFO mutual fund schemes needs to go through the offer documents carefully. Individuals should also ensure whether by investing in the NFO mutual fund they will be able to achieve their objectives, the portfolio of assets that the mutual fund scheme will be holding, and other related aspects.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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