NFO Process — New Fund Offer Explained
A New Fund Offer (NFO) is the first subscription window of a new mutual fund scheme. This lesson covers how long it stays open, when units are allotted or money refunded, the minimum a scheme must collect and why a ₹10 unit is not cheap.
What an NFO is
A New Fund Offer is the period in which a new scheme first accepts money from investors. Units are offered at the price stated in the offer document, which by convention is ₹10. The scheme's investment objective, benchmark and expenses are disclosed in the Scheme Information Document before the offer opens.
A scheme may be launched only after SEBI gives its final observations on the offer document, and within 6 months of them. SEBI does not approve or endorse the scheme.
The timetable
An NFO stays open for at least 3 working days and at most 15 calendar days. The same limits apply to open-ended and close-ended schemes; ELSS is the exception. Statements that a close-ended scheme may stay open for 30 days are not the current rule.
Units are allotted within 5 working days of the offer closing. Because they are allotted only after it closes, they cannot be redeemed during the offer.
Minimum subscription and refunds
A new scheme has to collect a minimum amount: ₹20 crore for debt and debt-oriented hybrid schemes, ₹10 crore for other schemes, and ₹5 crore for index funds and ETFs, whether on equity or other indices.
If the minimum is not collected, the money is refunded within 5 working days of closure. A late refund earns the investor interest at 15% a year.
Why ₹10 is not cheap
A unit price is only a way of dividing a portfolio into units. Before stamp duty, ₹50,000 buys 5,000 units at ₹10 or 200 units at ₹250; either way the investor holds ₹50,000 of units. What happens next depends on how each portfolio performs, and either can fall in value.
Once a scheme is running, open-ended units are bought and redeemed at NAV. Units of listed close-ended schemes and ETFs trade at market prices that may be above or below NAV.
Rules at a glance
An NFO that falls short (illustrative)
A new debt scheme collects ₹14 crore by the closing date of its NFO. The minimum for a debt scheme is ₹20 crore, so the money is refunded to every applicant within 5 working days of closure.
Had it been an actively managed equity scheme, the same ₹14 crore would have been above the ₹10 crore minimum, and units would have been allotted within those 5 working days.
₹50,000 at ₹10 and at ₹250 (illustrative)
- Assumptions for the arithmetic only: Asha puts ₹50,000 into an NFO at ₹10 a unit, and Bharat puts ₹50,000 into an existing scheme at a NAV of ₹250. Each portfolio is then assumed to fall by 10%.
- Stamp duty for each = 0.005% × ₹50,000 = ₹2.50, leaving ₹49,997.50 to buy units.
- Asha's units = ₹49,997.50 ÷ ₹10 = 4,999.75. Bharat's units = ₹49,997.50 ÷ ₹250 = 199.99.
- After a 10% fall the NAVs are ₹9 and ₹225. Asha holds 4,999.75 × ₹9 = ₹44,997.75; Bharat holds 199.99 × ₹225 = ₹44,997.75.
Result. Both began with ₹49,997.50 of units and both now hold ₹44,997.75. The number of units differs; the value and the percentage change do not.
Key points
- NFO units are offered at the price in the offer document, usually ₹10 by convention; that does not make them cheaper than units of an existing scheme.
- An NFO stays open for at least 3 working days and at most 15 calendar days (ELSS excepted).
- Units are allotted, or money refunded, within 5 working days of closure; a late refund earns interest at 15% a year.
- Minimum subscription: ₹20 crore for debt and debt-oriented hybrid schemes, ₹10 crore for other schemes, ₹5 crore for index funds and ETFs, whether on equity or other indices.
- A scheme may be launched only after SEBI's final observations; SEBI does not approve or endorse it.
Common misunderstandings
- A ₹10 unit is not cheaper than a unit of an existing scheme with a higher NAV: the value held depends on the amount invested and on the portfolio.
- SEBI's observations are not an approval: SEBI does not approve or endorse a scheme.
- A close-ended NFO cannot stay open for 30 days: the maximum is 15 calendar days.
Questions people ask
Can units be redeemed while the NFO is open?
No. Units are allotted after the offer closes, so there is nothing to redeem during it.
What if a scheme does not collect its minimum subscription?
The money is refunded within 5 working days of closure, and a late refund earns interest at 15% a year.
Is the value of NFO units certain to rise after allotment?
No. Nothing makes their value certain to rise; it follows the portfolio and can fall.
What this lesson relies on
- SEBI (Mutual Funds) Regulations, 2026
- SEBI Master Circular for Mutual Funds (20 March 2026) — new fund offers: period, allotment, refund and minimum subscription
- Indian Stamp Act, 1899, as amended by the Finance Act, 2019 — stamp duty on mutual fund units from 1 July 2020
This lesson was reviewed independently against these sources on 8 October 2026. Rules change: check the current regulation, scheme document or policy wording before relying on any figure. This is education, not advice.