NFO in Mutual Funds: Meaning, Benefits & How It Works

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Investors who are looking for new investment opportunities to participate in can consider investing in the New Fund Offering (NFO) by a mutual fund house. Through this scheme, asset management companies offer a specific time during which investors can invest in this scheme at a set price. In this article, we will cover what is NFO in mutual fund and how you can invest in it.

What is a New Fund Offer (NFO)?

During the first subscription period, known as the New Fund Offering (NFO), investors can buy units of the new scheme at a base price. In most cases, an NFO mutual fund is priced at INR 10 per unit, which makes it beneficial for early investors. The purpose of NFO by an asset management company is to offer a value-for-money proposition especially for long-term investors.

How Does an NFO Work?

Here is a quick rundown of how NFO operates:

1. Planning and Approval: The Securities and Exchange Board of India (SEBI) grants the AMC regulatory approval after it designs the fund. This ensures transparency and accountability from the AMC towards the investors.
2. NFO Subscription Window: Investors are then offered the NFO to invest for limited time (usually 15-30 days).
3. Unit Allotment: Units are allocated to investors at the issue price.
4. Fund Deployment: The AMC deploys the pooled funds according to the scheme’s investment strategy.

What Happens After the NFO Closes?

The mutual fund scheme changes to an open-ended mutual fund once the NFO subscription period has ended. The units are now purchased and sold at the current Net Asset Value (NAV) rather than the original fixed price.

SEBI mandates that funds should be fully invested within 30 business days of unit allotment, AMC can seek extensions for investment. However, if investment is incomplete after 60 business days the AMC has to give investors the option to exit without charging any penalty fee.

Types of NFOs in Mutual Funds

A NFO mutual fund is offered in different categories to investors based on how and when they are allowed to enter and exit the scheme. Here are the three main types of NFOs in mutual funds:

Open-Ended NFO

After the subscription window, an open-ended NFO is transferred to a fund that allows investors to buy or sell units at any time based on the prevailing NAV. There is no limit to the number of units that can be issued, offering liquidity and flexibility to investors.

Close-Ended NFO

A close-ended NFO only accepts investments during the initial subscription window. After this period, no new investments are allowed, the units of this scheme are locked in until the scheme matures. While investors cannot directly redeem during the lock-in period, they can sell their units to other investors on the stock exchange.

Interval NFO

The characteristics of both open-ended and closed-ended mutual funds are combined in an interval NFO. Investors can purchase or redeem units only during specific transaction windows defined by the AMC—these are usually announced in advance and occur at fixed intervals (e.g., quarterly, semi-annually). Outside of these windows, the fund remains closed for transactions. This type of NFO is suitable for investors with a defined investment horizon who are comfortable with limited liquidity.

Also Read: Benefits of Mutual Fund Indexation

Things to Keep in Mind Before Investing in NFO Funds

Before investing in a NFO mutual fund, it is important to understand if an NFO mutual fund is right for your mutual fund portfolio or not. Here are some key points to consider:

Investment Management and Objective

Investors should pay close attention to the NFO’s objectives and strategy, especially the sector, market capitalisation, or theme it targets. It is also important to know the background of the Asset Management Company (AMC) and the fund manager’s experience.

Expense Ratio

To evaluate the cost-effectiveness of the NFO, look at the expense ratio and other related fees, such as entry or exit loads, and contrast these costs with those of other NFO mutual funds.

Investment Horizon

When selecting a new NFO mutual fund, take into account your investment horizon, or the length of time you intend to remain invested. Matching the length of your investment with the plan's strategy can help you manage expectations and lessen the effects of market volatility.

Risk

NFO mutual funds carry market risks and limited track record, which can make it difficult to assess future growth potential. Investors will have to rely on the fund’s strategy and their own risk tolerance when investing.

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Who Should Invest in NFOs in Mutual Funds?

If you're considering whether a New Fund Offer (NFO) suits your investment goals, here are some key factors to help you decide.

• Investors with Higher Risk Appetite – NFOs can be volatile, so they may suit those comfortable with higher levels of market risk.
• Long-Term Investors – If you have a clear long-term investment horizon, NFOs may offer potential for gradual growth over time.
• Those Seeking Diversification – NFOs can be a way to diversify your portfolio by investing in new themes or unexplored sectors.
• Research-Driven Investors – Ideal for investors who carefully assess fund objectives, review the fund house’s track record, and compare alternatives before investing.
• Early Adopters of Emerging Themes – Suitable for those aiming to capitalise on first-mover opportunities in innovative sectors or strategies introduced through the NFO.

It’s also important to carefully assess NFO advantages and disadvantages to make calculated risk on investments and exit from this type of investment scheme.

How to Invest in an NFO in Mutual Funds?

The following is a detailed guide to investing in NFO mutual funds:

1. Step 1: Carefully consider the NFO mutual fund’s objective and other aspects such as the AMC reputation and fund manager experience to ensure it aligns with your wealth goals.
2. Step 2: Choose your investment platform, such DBS Treasures’ web portal, mobile app, or through your wealth management, ensuring a smooth and personalized experience.
3. Step 3: Decide which NFO scheme you wish to invest in and how much you want to invest. Investors receive NFO units following the conclusion of the subscription period.

Benefits of the New Fund Offer

Investing in a New Fund Offer (NFO) presents unique advantages that can help investors enhance their portfolio with fresh opportunities and growth potential. Here are some NFO benefits investors can avail:

• Ability to invest in new and innovative investment schemes right from the beginning.
• Opportunity to invest in upcoming industries, asset classes, or themes that are often not offered by current funds.
• Ability to buy units at a predetermined offer price through the NFO phase.
• Early investing enables long-term wealth accumulation since the fund's assets increase from the start.
• Diversification benefits by adding a fresh portfolio allocation to your overall investment mix.

Also Read: How Mutual Funds Work

Key Differences from Existing Mutual Funds

Investor seeking clarity on whether they should prefer NFO mutual funds over existing mutual funds can take a look at this table to understand the difference between NFO mutual funds and existing mutual funds.

Difference Between NFO and IPO

Though often confused, NFOs and IPOs serve different purposes and operate under distinct frameworks. The table below outlines the key differences between the two.

Popular NFOs in 2025

Several fund houses have launched new NFO mutual funds in 2025, offering investors opportunities to explore emerging themes and strategies. Below is an overview of some notable NFOs currently open for subscription as per AMFI India.

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Final Thoughts

NFO mutual funds offer early access to new investment schemes but require thorough evaluation based on limited history of performance and greater exposure to risk. Aligning your investment choice with long-term financial objectives is critical. The DBS Treasures Premium Savings Account supports evolving banking and investment needs through personalised service, seamless account management, and access to curated wealth solutions.