The Buyt Desk
Two types of investors are there in the market: First, try to capitalize the market when it is at the pinnacle. The second investors are those who look for lucrative fund investments at a competitive price. Some investors try to keep their portfolio mix by investing in both options.
The asset management companies attract the second group of investors by releasing New Fund Offer (NFO). NFO is the first unit offering of a new fund by the asset management company at an enticing price.
Types Of NFO (New Fund Offer)
Asset management companies use all the advertising methods to convince investors why their NFO is the too-good-to-be-missed deal. However, it is not always true. So, before you start exploring more about NFO, have a look at its different types.
Closed-Ended Funds – This is one of the most marketed new fund offers. This type of NFO comes for a limited period with fixed units. AMC offers only a specified number of fund units in the portfolio. And from the start till the end of this scheme, new investors are allowed to enter, and existing investors are not allowed to exit during the whole subscription period. Closed-end fund trading takes place on exchange with daily price quotes all through the day. Buying of the fund can happen on its launching date via a brokerage firm.
Open-Ended Funds – Open-end fund does not put caps on the share units. AMC announces the purchase of units on launch day. The fund could be purchased and sold on its launch date and later through a brokerage firm. The NFO shares do not trade on the exchange. The AMC or the fund company or affiliates of the fund company manage it. Open-ended fund reports net asset value every day after the market closes.
Exchange-Traded Fund – It is also launched via NFO. It is a kind of investment fund openly traded on the stock market.
Close-End Vs Open-End Vs Open-End NFO
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The closed-end fund is the most popular type of NFO. Its first advantage is that it offers an extended period ranging from 3-4 years. It saves investors from making wrong decisions.
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It gives the facility to investors to invest money in the market.
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Closed-end funds allow investors to invest in new strategies.
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The open-ended fund might witness a sudden outflow, which many times makes the fund managing companies sell units at a low price. On the other hand, closed-end facilitates thoughtful planning.
