NFO

Every fund house has to issue units for the first time to raise corpus for its schemes and this is referred to as an NFO. Quite often the argument for investing in an NFO of mutual funds is the same as an IPO; it is available at a low price of Rs10. As far as NFOs are concerned, that is far from the truth.

NFOs can be either for an open ended fund or a closed ended fund. In case of an open ended fund, the fund is created either out of an initial NFO or by acquiring the schemes of another fund. In case of closed ended schemes, the NFO is kept open for a period of 15-20 days and then the fund is closed and the entire corpus invested in stocks. However, such closed ended NFOs are listed on the stock exchange and normally quote at a discount to the NAV.

Fund manager is responsible for executing the stated fund strategy and selecting securities as per the fund objective. Especially during an NFO, the fund manager can choose to hold a part of your investments in cash and invest them at a later date, in case the timing is not apt for the entire investment. NFO lets fund managers enjoy the liberty to buy without worrying about untimely redemption by investors. Hence the choice of securities and their entry time is highly crucial and that remains in the hands of the fund manager.

One needs to have Permanent Account Number (PAN) and Know Your Customer (KYC) duly submitted in order to be any Mutual Fund investor. Investing in an NFO further entails filling up and signing the application form for the NFO, which is available along with a document called the Key Information Memorandum (KIM). The investments in the NFO have to be made withing the 15 days of opening. Payment is made through a cheque or NEFT and RTGS. Units are allotted to investors within 5 business days of the NFO ending and the account statement furnishing all the details is sent to investors thereafter.