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An NFO (New Fund Offer) presents an investment opportunity to invest in a newly launched fund that offers exposure to a diverse range of financial assets, including equities, debt, real estate, gold, or even a hybrid mix of these. Such funds cater to both retail investors with modest capital and seasoned institutional investors, providing flexibility and potential for various investment strategies.
In this blog post, we’ll cover all about NFO, including the different types of NFOs, and the benefits that NFO investors can enjoy.
Before investing in NFO, there are certain important things one must consider:
NFOs come in several different types, each with its features and advantages. Some of the most common NFOs include:
Closed-End Fund: A closed-end NFO is a fund with a fixed number of NFO units, and investors can purchase NFO units only during the pre-defined subscription period. The maturity period of these funds usually ranges from three to five years, and investors can only make withdrawals after the maturity date.
Open-End Fund: An open-end is a type of NFO that allows investors to buy or redeem NFO units at any time, and unlike closed-end funds, they do not have a maturity period.
Investing in NFO is fairly simple. Here are the steps you need to follow:
IPO refers to the process by which a company goes public to raise capital and sells shares of its stock to retail investors for the first time. For more details, check out the IPO Full Form. On the other hand, NFO refers to the process by which an asset management company raises capital from investors by selling units of the mutual fund.
The price of an IPO is indicative of the value of the company. Whereas NFO units are typically priced at INR 10 is not indicative of anything.
The IPO valuation is done based on P/E and P/B ratios, which determine its pricing. In NFO, there is no question of valuation as funds collected are simply divided into units.
An initial public offering (IPO) requires efficient funds usage in order to provide value for investors. In the case of an NFO, the level of the market for which the AMC is raising funds will determine whether the investors will gain value from their investment.
NFOs are generally less risky than IPOs as they involve lower-risk investment instruments like debt and index funds, whereas IPOs can be riskier due to their exposure to the stock market. NFOs also tend to have a smaller minimum investment requirement compared to IPOs.
Additional Read: Upcoming IPOs
NFOs can provide investors with several advantages over other investments, such as:
New Fund Offers (NFOs) are a great way for investors to gain exposure to different asset classes. Due diligence is important for investors before investing in NFOs, as different NFOs have different features and risks. NFOs can provide investors with the potential for high returns, and safe investing options, and are an attractive choice for investors looking to diversify their portfolios.
Disclaimer: Investments in securities markets are subject to market risks, read all the related documents carefully before investing.
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