Consider a client who approaches you during the launch of a new thematic equity fund, eager to deploy a lump sum of five lakhs. They assume that because they submitted their application on the second day of the New Fund Offering (NFO), they will receive their units at a different price than someone who invests on the final day.
As an MFD, your role is to clarify that during an NFO period, the unit price is fixed at a nominal value, typically Rs 10 per unit, regardless of when the investment is made during that window.
The accounting mechanics during an NFO differ fundamentally from an ongoing scheme. In an existing mutual fund, you purchase units at the prevailing Net Asset Value, which fluctuates daily based on market movements. During an NFO, the asset management company is effectively gathering capital to construct the initial portfolio, meaning no market-linked valuation applies to the units until the scheme starts its open-ended operations. Consequently, all investors who participate during the NFO period are allotted units at the face value of Rs 10.
This distinction is vital when discussing suitability with your clients. While the fixed price of Rs 10 might give the psychological impression of a ‘cheap’ entry point, you must guide your client to focus on the underlying investment strategy and the fund house’s track record rather than the subscription price. If the portfolio strategy does not align with their risk appetite, the fixed entry price is irrelevant to their long-term wealth creation.
Your value lies in conducting this suitability assessment, ensuring that the NFO fits their broader portfolio, and managing their expectations regarding the transition from the NFO phase to active market-linked trading.
After the NFO period closes, the fund house undergoes a process of allotment and valuation, typically within five business days. During this time, the fund manager deploys the collected capital into the targeted securities. Once the portfolio is established and the NAV is declared, the scheme transitions into its open-ended phase. Helping your client understand this transition prevents the confusion that often arises when they see a static value during the NFO and a dynamic, fluctuating price once the scheme becomes operational.
Nuance
Check Your Understanding
An investor participates in an NFO and invests Rs 1,00,000 on the first day and another Rs 1,00,000 on the last day of the offer period. At what price will the units be allotted to the investor?
When does a mutual fund scheme start declaring its daily Net Asset Value (NAV) to the public after an NFO?
This is a companion read for Section 9.9 — Cut-off Time and Time Stamping from Ace the NISM Mutual Fund Distributors Exam by Akhilesh Gururani, available on Amazon Kindle.
Copyright © 2026 Akhilesh Gururani. All rights reserved.