Contents
Definition
A New Fund Offer (NFO) is the initial public subscription period during which an Asset Management Company (AMC) invites investors to subscribe to units of a newly launched mutual fund scheme at the offer price — typically ₹10 per unit. SEBI Mutual Fund Regulations (Fourth Schedule, Regulation 28) cap the NFO subscription window at a maximum of 15 business days. Once the NFO closes, the scheme opens for ongoing purchases and redemptions (for open-ended funds) at prevailing NAV, or remains locked (for close-ended / interval funds).
What happens during an NFO
- Scheme Information Document (SID) and Key Information Memorandum (KIM) are filed with SEBI and published at least 5 working days before NFO opens.
- Investors subscribe at ₹10 per unit; allotment happens after the window closes and the corpus is invested in line with the stated investment mandate.
- Close-ended NFOs list units on a stock exchange (BSE/NSE) within 5 business days of allotment, enabling secondary-market exits.
- Open-ended schemes enter normal NAV-based buy/sell mode typically within 5 business days of allotment.
- SEBI mandates a minimum corpus of ₹20 crore for most open-ended equity schemes and ₹10 crore for debt schemes to proceed past allotment; below these thresholds the NFO is wound up and money refunded.
Regulatory framework
SEBI (Mutual Funds) Regulations, 1996 — Regulation 28 and Fourth Schedule govern NFO timelines, disclosures, minimum corpus, and advertisement standards. SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2019/104 (2019) tightened the 15-business-day cap and mandated online subscription infrastructure. AMCs must not open a second NFO for an identical category if they already operate a live scheme in that category (SEBI October 2017 Categorisation Circular — see balanced-fund entry for context).
Tax / cost treatment
NFO units are subject to the same tax regime as any other MF purchase: holding period from allotment date determines STCG/LTCG classification. The ₹10 NFO price is the cost of acquisition for capital-gains computation. There is no NFO-specific tax concession. Exit loads, if any, are disclosed in the SID and apply from allotment date. SEBI banned entry loads in 2009 (SEBI Circular IMD/CIR No.4/168230/09), so NFO subscriptions carry no upfront load from the investor side; AMCs recover distribution costs through the Total Expense Ratio (TER).
Worked example
Axis AMC launches "Axis Innovation Fund" as an open-ended thematic equity NFO. NFO opens 10 June 2026, closes 24 June 2026 (15 business days). Minimum application ₹5,000. Investor subscribes ₹50,000 → allotted 5,000 units at ₹10. The scheme opens for normal trading on 1 July 2026 at NAV ₹10.15. The investor's cost basis is ₹10/unit (allotment date); if sold after 12 months, gains above ₹1.25 lakh/year are taxed at 12.5% LTCG. If the scheme fails to collect ₹20 crore by close, the NFO is aborted and ₹50,000 is refunded with no interest.
See also
Primary source
- SEBI (Mutual Funds) Regulations, 1996 — Regulation 28
- SEBI Circular SEBI/HO/IMD/DF2/CIR/P/2019/104 (NFO window)
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