How does an NFO Work?
1. Launch: The Asset Management Company (AMC) announces the launch of a new mutual fund scheme and prepares the offer document, which contains details about the scheme’s objectives, investment strategy, risks, and terms.
2. Subscription Period: During the NFO period, which typically lasts for a few days or weeks, investors can subscribe to units of the new scheme by filling out an application form and investing money.
3. Allotment: At the end of the subscription period, the AMC calculates the total subscriptions received and determines the number of units to be allotted to each investor based on the amount invested and the scheme’s subscription terms.
4. Listing (Optional): After the NFO period, some mutual fund schemes may choose to list their units on stock exchanges, allowing investors to buy and sell units in the secondary market. However, this step is optional and depends on the scheme’s structure and objectives.
5. Commencement of Operations: Once the NFO period ends and the units are allotted, the new mutual fund scheme officially begins its operations. The scheme’s fund manager starts deploying the invested funds according to the scheme’s investment strategy and objectives.
6. Investment Performance: Investors can track the performance of the NFO and monitor how their investments are performing over time. The scheme’s performance is evaluated based on factors such as returns, risk-adjusted performance, and adherence to its investment mandate.