VMPL
New Delhi [India], November 17: When a mutual fund house introduces a new scheme to the market, it does so through what is called a New Fund Offer (NFO). This is the phase when investors may subscribe to a fund at its initial offer price, generally Rs. 10 per unit for equity and hybrid funds.
For those exploring different investment avenues, understanding how an NFO works, its structure, and its potential role in a diversified portfolio may help in making informed decisions.
What is an NFO?
An NFO is the first-time offer of a new mutual fund scheme to the public. Through an NFO, investors are given an opportunity to participate in a scheme that has just been launched. After the NFO period closes, the scheme becomes open for regular transactions, purchases, switches, and redemptions, based on its ongoing market value.
An NFO may be introduced in various categories, such as equity, debt, hybrid, or thematic funds, depending on the scheme's investment objective. The subscription period usually remains open for a few days, allowing investors to apply for units at the initial offer price. Once the NFO period ends, units are allotted, and the fund begins investing in securities as per its mandate.
How an NFO works
During the NFO period, investors can apply for units directly with the fund house or through distributors and online platforms. Once the NFO closes, the collected funds are deployed into the market based on the scheme's investment strategy. The fund manager then begins building the portfolio aligned with the stated objectives, such as focusing on specific sectors, market capitalisations, or asset classes.
After the scheme becomes active, investors can monitor its performance based on the daily Net Asset Value (NAV), which reflects the market value of the underlying assets. While an NFO begins at a face value of Rs. 10 per unit, future transactions occur at prices determined by the NAV once it is calculated and published.
Types of NFOs
1. Open-ended NFOs:
After the NFO period, these schemes remain open for both new and existing investors. Units can be purchased or redeemed anytime at the prevailing NAV. This structure offers flexibility and liquidity.
2. Close-ended NFOs:
These funds are available for subscription only during the NFO period. Once closed, investors cannot purchase additional units. The units are usually listed on a stock exchange, where they may be traded until maturity.
Why investors may consider an NFO
An NFO may introduce a new investment opportunity that is not currently available in the existing fund lineup. It may also allow investors to participate in emerging themes, strategies, or market segments that align with their financial goals and risk tolerance.
However, investors should not assume that investing in an NFO automatically results in favourable outcomes. Since the fund does not have a performance record at launch, decisions should be based on the scheme's stated objective, the experience of the fund manager, and how the fund fits within one's portfolio allocation. Past performance may or may not be sustained in future.
Comparing NFOs with existing mutual fund schemes
Many investors wonder whether they should invest in an NFO or choose from existing mutual fund schemes. It is important to remember that the initial price of Rs. 10 does not make an NFO cheaper beneficial compared to ongoing funds. The value of an investment depends on the fund's portfolio composition, market conditions, and long-term strategy rather than the entry price.
Existing schemes have a performance history and established portfolios, which may help investors evaluate how the fund has managed different market cycles. NFOs, on the other hand, may be suitable for those who are looking to diversify into a new theme or asset class that is not covered by existing options.
Factors to review before investing in an NFO
Before investing, it may be useful to review the following aspects:
1. Scheme objective: Understand what the fund aims to achieve growth, income generation, or capital preservation.
2. Asset allocation and risk profile: Review the mix of equities, debt, or other securities, and assess whether it aligns with your risk tolerance and financial goals.
3. Fund manager's experience: Consider the track record of the fund manager and the consistency of their investment approach across market phases.
4. Investment horizon: Ensure that your investment horizon aligns with the scheme's focus as NFOs are generally designed for specific time frames.
5. Costs and exit load: Review the expense ratio, exit load, and minimum investment requirements to understand the overall cost of participation.
Understanding the role of NAV in fund performance
Once the NFO period ends, the fund begins publishing its NAV daily. NAV represents the per-unit market value of the scheme's investments after accounting for expenses and liabilities. It helps investors track the fund's progress over time. While the NFO starts at a fixed issue price, the NAV fluctuates based on market movements and the performance of underlying securities.
Investors may monitor NAV trends to evaluate how their investment is performing relative to market benchmarks or peer schemes. However, NAV alone should not be treated as a performance indicator, it is simply the fund's value at a given point in time.
Past performance may or may not be sustained in future.
About the Bajaj Finserv Banking and Financial Services Fund
The Bajaj Finserv Banking and Financial Services Fund, an open ended equity scheme, seeks to invest in companies that are part of India's evolving financial landscape. The NFO period is currently live from Monday, November 10, 2025, to Monday, November 24, 2025. The scheme will reopen for subscription within five business days from the date of allotment.
The scheme seeks to capture long-term trends shaping India's BFSI sector, including technology adoption, financial inclusion, demographic shifts, and innovation. It invests across banks, NBFCs, insurers, AMCs, and capital market intermediaries, offering exposure beyond traditional lending businesses.
Conclusion
An NFO may offer an opportunity to participate in a new mutual fund scheme that fits specific financial goals or themes. However, like any other investment decision, it is important to evaluate the scheme's objectives, portfolio structure, and suitability within your broader financial plan. While the NAV becomes an important tracking measure once the fund is operational, the choice to invest during the NFO period should depend on whether the fund's strategy aligns with your investment approach and time horizon. Taking a considered view may help build a more balanced and diversified portfolio over time.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.
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