Companies have a variety of different ways of raising money. For example, IPO (Initial public offerings) is how businesses receive capital from retail investors. On exchanges such as BSE and NSE, the stock is listed after the IPO. The funds raised by the company during the IPO are then used for the growth of the business.
Likewise, they collect capital through NFOs (New Fund Offers) with AMCs (asset management companies). It is through an NFO scheme that new mutual funds come into being. Funds received in the NFO by the AMC are used for securities purchases in compliance with the scheme's mandate. NFO certainly seeks your attention if you are looking to learn more about mutual funds.
NFO or New Fund Offer is an opening offer by an asset management firm for a scheme. You need to comprehend the basic workings of NFO fully. When a fund is opened on the market, a new fund bid is typically made for the raising of capital for securities. An investor has limited time to subscribe to NFO mutual funds. The NFOs are functional on first-come-first-service. An investor can also opt to invest at an offer price in the mutual fund scheme.
The AMC is laying out an NFO for buying securities to help the company increase its capital. The NFO of mutual funds also operates in the same way as a first public offering (IPO). The new fund offer documents often contain information on the portfolio, such as the company stock to be bought, the securities to be acquired, the fund manager, etc.
An investor can sign up for an NFO in a limited amount of time. You can buy the units at the price of your subscription. The price for the bid is typically Rs.10. Investors can also purchase the fund at a prevailing market price after the offering duration is over. The Net Asset Value (NAV) is the market price of the mutual funds.
Types of NFO:-
Two kinds of new fund offerings are available:
Investors often get attracted to the NFOs because they come cheaper. They also expect that the NFO may offer better returns than the existing funds but one should do proper due diligence before investing in NFOs. Below is the checklist for the same:
To sum up, everything that has been stated so far AMCs are more likely to create new funds and often come up with something new. But that doesn't mean that you have to invest in it. The best way to benefit from bull runs or safeguard your savings during the bull period will be a fund that was managed through different market cycles and is supervised by seasoned fund administers. So, while investing in NFOs please consider your risk appetite, and preferred investment horizon, funds objective should match with your investment profile so that it should help you fulfill your investment goals.
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