Every few weeks, someone in our WhatsApp community asks: "There's a new NFO launching. Should I invest at ₹10 NAV instead of buying an existing fund at ₹200?"
We get it. The logic seems obvious. Lower price, better deal. But that's not how mutual funds work.
At Belong, we've spent years helping NRIs cut through marketing noise and make smarter investment choices. This guide covers everything you need to know about NFOs, from eligibility rules to whether they're actually worth your money.
The ₹10 NAV Myth: Why "Cheaper" Doesn't Mean Better
Before we go further, let's address the elephant in the room.
An NFO at ₹10 NAV is not cheaper than an existing fund at ₹250 NAV. NAV is just a number representing the per-unit value of underlying assets. If both funds grow 20%, you earn 20% regardless of starting NAV.
Here's a simple example. You invest ₹10,000 in an NFO at ₹10 NAV (1,000 units). It grows to ₹12 NAV. Your investment is now ₹12,000. Your friend invests ₹10,000 in an existing fund at ₹250 NAV (40 units). It grows to ₹300 NAV. His investment is also ₹12,000.
Same 20% return. Different NAVs. No advantage either way.
👉 Tip: Judge a fund by its strategy, expense ratio, and fund manager track record. Never by its NAV.
What Exactly is a New Fund Offer?
A New Fund Offer is the launch period when an Asset Management Company (AMC) introduces a new mutual fund scheme. It works similar to an IPO for stocks, except you're buying units of a mutual fund.
During this window (usually 15-30 days per SEBI guidelines), you can subscribe at a fixed price, typically ₹10 per unit. Once the NFO closes, the fund opens for regular transactions at market-determined NAV.
AMCs launch NFOs to:
- Introduce new investment themes (AI, manufacturing, ESG)
- Offer access to new asset classes or geographies
- Expand their product lineup
Some NFOs bring genuinely innovative strategies. Others are marketing exercises repackaging existing ideas. The difference matters.
Can NRIs Participate in NFOs?
Yes. NRIs and OCIs can invest in NFOs launched by Indian AMCs.
You'll need:
- An active NRE or NRO bank account
- Completed KYC with the AMC or a KYC Registration Agency
- Verification that the specific NFO accepts NRI investments
The Scheme Information Document (SID) for each NFO specifies whether NRIs are eligible. Most open-ended equity NFOs accept NRI investments, but some closed-ended or sector-specific funds may have restrictions.
Always check before the NFO window closes. Missing the deadline means waiting until the fund opens for regular subscription.
The FATCA Problem: US and Canada NRIs
If you're based in the United States or Canada, NFO investing gets complicated.
FATCA (Foreign Account Tax Compliance Act) requires Indian AMCs to report US person holdings to the IRS. The compliance burden leads many fund houses to simply reject US/Canada NRI applications.
Fund houses that still accept US/Canada NRIs:
- SBI Mutual Fund
- UTI Mutual Fund
- Aditya Birla Sun Life (select schemes)
You'll need to provide your US Tax Identification Number (TIN) or GIIN and complete additional documentation. Verify with the specific AMC before applying.
👉 Tip: US NRIs should confirm FATCA compliance status before investing in any Indian mutual fund, not just NFOs.
Open-Ended vs Closed-Ended NFOs
Not all NFOs work the same way. Understanding the structure helps you avoid liquidity surprises.
Open-ended NFOs have no fixed maturity. After the NFO period, you can buy or sell units anytime at prevailing NAV. Most equity NFOs fall in this category. They offer flexibility, which matters when you're managing investments from abroad.
Closed-ended NFOs lock your money for a predetermined period, typically 3-5 years. You can only exit early by selling on stock exchanges (if listed), often at a discount to NAV. Not ideal for NRIs who may need funds unexpectedly.
Interval funds combine both features, allowing transactions only during specific windows. These are rare and usually not recommended for overseas investors.
For NRIs, open-ended NFOs are almost always the better choice. The flexibility to exit when needed outweighs any theoretical advantages of closed structures.
Step-by-Step: How to Invest in an NFO from Abroad
Step 1: Verify your NRI banking setup
AMCs cannot accept foreign currency. You need either an NRE account (for repatriable investments) or NRO account (for non-repatriable investments). If you're unsure which suits your situation, our guide on NRE vs NRO accounts explains the differences.
Step 2: Complete mutual fund KYC
If you haven't invested in Indian mutual funds before, you'll need to complete KYC verification. This can be done through the AMC directly or via a SEBI-registered KYC Registration Agency. Check our NRI KYC process for detailed steps.
Step 3: Review the Scheme Information Document
This is non-negotiable. The SID reveals:
- Investment objective and strategy
- Asset allocation limits
- Risk factors
- Expense ratio
- NRI eligibility
- Exit load structure
Don't invest based on NFO advertisements alone. The SID contains what actually matters.
Step 4: Submit your application
Apply through the AMC website, a SEBI-registered broker, or mutual fund platforms. Ensure payment reaches the AMC before the NFO closing date. Late applications are rejected.
Step 5: Receive unit allotment
If the NFO meets its minimum subscription target, units are credited within 5 working days. You'll receive a statement from the Registrar and Transfer Agent (usually CAMS or KFintech).
NFO vs Existing Funds: The Honest Comparison
This is where we give you the advice most articles avoid.
Existing funds are usually the better choice.
Here's why:
Factor | NFO | Existing Fund |
|---|---|---|
Track record | None | 3-10+ years of data |
Portfolio | Unknown until launch | Fully transparent |
Risk assessment | Guesswork | Based on actual performance |
Fund manager evaluation | Promises only | Proven results |
Expense ratio | Often higher initially | Typically optimized |
NFOs ask you to trust the AMC's marketing. Existing funds show you actual performance across bull markets, bear markets, and sideways movements.
When NFOs make sense:
- The fund offers a genuinely unique strategy unavailable elsewhere
- The AMC has a strong reputation with similar funds
- You understand and accept the additional uncertainty
- You have a 5+ year horizon to ride out initial volatility
When existing funds win:
- You want to analyze actual performance data
- You prefer lower uncertainty
- Similar themes already exist in established funds
- You're making a core portfolio allocation (not a satellite bet)
👉 Tip: If an existing fund offers similar exposure to what the NFO promises, choose the existing fund. Track record beats marketing.
Tax Rules: Same as Regular Mutual Funds
NFOs follow identical tax treatment as existing mutual funds. Your liability depends on fund category and holding period.
For equity-oriented NFOs (65%+ equity allocation):
Short-term capital gains (holding under 12 months): 20% tax Long-term capital gains (holding over 12 months): 12.5% on gains exceeding ₹1.25 lakh
For debt-oriented NFOs (less than 65% equity):
All gains taxed at your income slab rate, regardless of holding period. No indexation benefit available post-July 2024 budget changes.
TDS is deducted at source for NRIs. UAE residents can claim DTAA benefits to avoid double taxation. Ensure you obtain a Tax Residency Certificate for smooth processing.
For detailed tax calculations, see our comprehensive guide on mutual fund taxation for NRIs.
What the SID Won't Tell You: Real Risks of NFOs
Every SID lists standard risk factors. Here's what actually matters for NRIs:
Portfolio construction risk. During the NFO period, you don't know which specific stocks or bonds the fund will buy. The final portfolio may look very different from what you expected.
Timing risk. If markets fall right after the NFO launches, your investment starts underwater with no historical floor to reference. Existing funds give you entry points based on their track record.
Exit load surprises. Some NFOs have higher exit loads in the initial years. Read the SID carefully before assuming you can exit easily.
Expense ratio creep. NFOs often quote lower expense ratios to attract investors, then raise them after launch. Check if the ratio is "promotional" or permanent.
Should You Chase That Shiny New NFO?
For most NRIs we work with, the answer is no.
Your primary focus should be building a solid investment base with proven funds before exploring speculative bets. NFOs can be part of a diversified portfolio, but they shouldn't be the foundation.
If you're new to mutual fund investing, start with established best funds for NRIs that have weathered multiple market cycles.
A Better Alternative: GIFT City Funds
Here's something most NFO articles won't mention.
GIFT City mutual funds offer NRIs something no NFO can match: zero capital gains tax. These are USD-denominated funds operating in India's International Financial Services Centre under IFSCA regulation.
Through Belong, you can access GIFT City funds with:
- No capital gains tax for NRIs/OCIs
- No need for NRE/NRO account
- USD denomination protecting against rupee depreciation
- Start with just $500
Compare that to chasing NFOs for marginally lower expense ratios while still paying 12.5-20% tax on gains. The math often favors GIFT City.
The Bottom Line
NFOs aren't inherently good or bad. They're tools that serve specific purposes.
For most NRIs, existing mutual funds with transparent portfolios and proven track records are the smarter choice. Reserve NFO investments for genuinely innovative strategies after you've built a stable core portfolio.
And remember, ₹10 NAV is marketing, not value.
Have questions about a specific NFO? Join our WhatsApp community where NRIs discuss new launches, share research, and help each other make better decisions: Join Here
Ready to explore tax-free investing? Download the Belong app: Download Belong
