A new fund offer, known as NFO sells the units of a mutual fund scheme. Usually each unit costs ₹10. If you invest ₹20,000 during the offer period you buy 2,000 units. Those units appear in your account after the NFO closes and the allotment is finished.
The NFO allotment process follows a fixed timeline set by the Securities and Exchange Board of India SEBI. Knowing this timeline helps you understand when money leaves the bank account when units appear in the portfolio and when the scheme can be bought or sold at its price.
The NFO timeline from offer to sale
| Stage | What happens | Timing |
|---|---|---|
| Offer period | Investors apply and pay at the offer price, usually ₹10 per unit. | A maximum of 15 days and a longer period is permitted for equity linked savings schemes (ELSS). |
| Allotment or refund | Units are allotted to valid applications and money for rejected applications is refunded. | Within five business days of the NFO closing. |
| Ongoing sale and repurchase | An open-ended scheme reopens for regular purchases and redemptions at the applicable NAV. | Within five business days of allotment. |
| Deployment of proceeds | The fund house invests the money collected as the scheme document describes. | Within 30 business days of allotment with a one-time extension through the Investment Committee. |
How units are allotted
Units are allotted by dividing the amount invested by the offer price. Valid applications receive units at that price. The scheme document also tells whether any cap applies to the amount the scheme can raise. A mutual fund NFO is not a lottery like a public offering of shares. Therefore the main reasons for non-allotment are an application, a payment problem or a missed deadline. After allotment a statement of account or a credit of units appears in the demat or mutual fund account within the same five‑business‑day window.
The step‑by‑step process
| Step | What happens |
|---|---|
| 1. Read the scheme documents | The Scheme Information Document (SID) lists the objective, strategy, risk, costs and offer dates. |
| 2. Apply during the offer period | The application is placed through an online platform or the fund house with payment by net banking or UPI. |
| 3. The offer closes | No new applications are accepted after the closing date. |
| 4. Allotment | Units are allotted at the offer price and unaccepted amounts are refunded. |
| 5. Units appear in the account | The statement or portfolio shows the units allotted and their number. |
| 6. The scheme lists | An open-ended scheme reopens at the applicable NAV while a closed-ended scheme lists on a stock exchange. |
Open‑ended and closed‑ended NFOs after allotment
An open‑ended scheme reopens for continuous purchase and redemption at the applicable NAV. Any exit load is deducted from the proceeds. A closed‑ended scheme issues units during the NFO. Therefore its units are listed on a stock exchange. The exchange is the only exit before maturity. That makes liquidity a practical concern for closed‑ended NFOs.
Why ₹10 does not mean
| Factor | NFO | Existing fund |
|---|---|---|
| NAV | ₹10 face value, which is a starting reference and not a valuation | Reflects the portfolios past performance |
| Track record | None | Returns over one, three and five years |
| Strategy | May be niche | Established and observable |
| Risk assessment | Harder, since there is no history | Easier with data available |
A ₹10 NAV and a ₹150 NAV deliver the percentage return on the same portfolio. Therefore a low unit price gives no advantage.
What investors should take from this
The NFO allotment process is mechanical and well‑defined. The real decision comes before it: does the scheme offer something that existing funds in the category do not? Comparing an NFO with existing funds on strategy costs and track record answers that question better than the offer price does.
Kuvera offers mutual funds. Its guide on how to invest in an NFO covers the application steps in detail.
Frequently Asked Questions
1. How long does NFO allotment take?
Units are. The money is refunded, within five business days of the NFO closing.
2. At what price are NFO units allotted?
At the offer price usually the face value of ₹10, per unit.
3. How long can an NFO stay open?
An NFO can remain open for, up to 15 days. ELSS schemes have a longer period.
4. When can NFO units be sold?
NFO units of a ended scheme can be redeemed after the scheme reopens, within five business days of allotment and only if any exit load applies. NFO units of a closed-ended scheme can only be sold on the stock exchange where they are listed.
5. What happens if an NFO application is not allotted?
The amount is returned to the investors bank account within five business days after the NFO closes.
