NISM-Series-V-A: Mutual Fund Distributors · Scheme Related Information

New Fund Offer (NFO) Process and Allotment Explained

Updated 11 October 2026 · Fact-checked

A New Fund Offer (NFO) is the first sale of units of a new mutual fund scheme. Units are usually offered at ₹10 each for a limited period of up to 15 days. The AMC then allots units or refunds money within 5 business days, and bears the issue expenses itself.

Understand New Fund Offer (NFO) Process and Allotment

A New Fund Offer (NFO) is how an AMC raises the first money for a new scheme. Before it starts, the AMC files a draft Scheme Information Document (SID) with SEBI. It can launch only after SEBI's observations are addressed. The offer then opens to investors for a fixed, short window called the offer period.

During the NFO, units are normally sold at the face value of ₹10 per unit. This price is only a starting point. It does not mean the scheme is cheap. After allotment, the scheme's value per unit moves with its portfolio. An investor putting in ₹10,000 gets 1,000 units. In an existing scheme with a NAV of ₹50, the same ₹10,000 buys 200 units. Both investors own ₹10,000 worth of the portfolio.

The key difference between an NFO and an existing scheme is the stage. An NFO has no portfolio yet, so there is no past track record and no NAV. An existing open-ended scheme is open for continuous purchase and redemption at the applicable NAV.

After the NFO closes, the AMC must allot units or refund the money within 5 business days. An open-ended scheme must reopen for continuous sale and repurchase within 5 business days of allotment. A closed-ended scheme must be listed on a stock exchange, except for interval schemes.

SEBI also controls costs. Initial issue expenses of an NFO are not charged to the scheme. The AMC bears them from its own resources. No entry load is charged, so the investor's money goes fully into units.

Key formulas to remember

NFO unit price: Units allotted = Amount invested ÷ ₹10; Applies when the NFO is at the usual face value of ₹10. Example: ₹25,000 ÷ 10 = 2,500 units.
Maximum offer period: NFO open for not more than 15 days; The scheme cannot keep the subscription open longer than this.
Allotment / refund timeline: Within 5 business days of NFO closure; If the AMC delays the refund beyond this, it must pay interest to investors (15% a year as per the NISM workbook).
Reopening of open-ended scheme: Continuous sale and repurchase begins within 5 business days of allotment; Applies to open-ended schemes only.
Listing of closed-ended scheme: Units listed on a stock exchange within 10 business days of allotment; Interval schemes are the exception. Confirm the exact days in the current workbook.
NFO expenses: Initial issue expenses are borne by the AMC, not charged to the scheme; Entry load is also not allowed since 2009.

How to solve New Fund Offer (NFO) Process and Allotment questions

Most NFO questions test one rule: a number of days, who pays, or what price applies. Use this method.

1Identify what the question asks: price, period, timeline, expense, or the difference from an existing scheme.
2Check the scheme type. Open-ended and closed-ended schemes differ after allotment (reopening versus listing).
3Recall the matching rule from the key formulas: ₹10 price, 15-day offer, 5 business days to allot or refund.
4For date questions, count business days only. Skip Saturdays, Sundays and market holidays.
5For price questions, divide the amount by the unit price. Do not assume ₹10 means cheaper than a NAV of ₹50.
6For expense questions, ask who bears the cost. Initial issue expenses fall on the AMC.
7Remove options with absolute words such as always or never, and options with wrong numbers, then pick the one that matches the rule.

Quickest way: Three-number recall: 15, 5, 5

When to use it: Use for any direct recall MCQ on NFO timelines when you have under a minute.

Remember 15 days as the maximum offer period.
Remember 5 business days to allot or refund after closure.
Remember 5 business days after allotment for an open-ended scheme to reopen.
Remember the price is ₹10 and the AMC pays issue expenses.
Match the option to these anchors and move on.

Common mistakes in New Fund Offer (NFO) Process and Allotment

Thinking an NFO at ₹10 is cheaper than an existing scheme at a higher NAV.
Students compare per-unit prices instead of what the money buys.
Fix: Units are only a share of the portfolio. The same amount buys the same value of assets. A lower unit price gives more units, not more value.
Counting calendar days instead of business days for allotment.
The word days is used loosely in the question.
Fix: The rule is business days. Exclude weekends and holidays when you count.
Believing the NFO expenses are charged to investors through the scheme.
Older rules allowed a limit on initial issue expenses, and some study notes still mention it.
Fix: Under current SEBI rules the AMC bears initial issue expenses. If an option says the scheme bears them, it is wrong.
Confusing the offer period with the allotment period.
Both numbers are short and sound alike.
Fix: The offer period is how long the NFO stays open (up to 15 days). Allotment or refund happens after it closes, within 5 business days.
Assuming every scheme is listed after the NFO.
Students link NFO with stock exchange listing.
Fix: Only closed-ended schemes are listed (interval schemes are exempt). Open-ended schemes reopen for sale and repurchase with the AMC.
Assuming an entry load can be charged in an NFO.
Older material shows an entry load on NFOs.
Fix: Entry load has been abolished since 1 August 2009, so the whole amount goes into units.

Worked examples

Example 1

An investor puts ₹10,000 in an NFO at ₹10 per unit. A friend puts ₹10,000 in an existing scheme with a NAV of ₹50. Which statement is correct?
(a) The NFO investor gets 1,000 units and has the better deal because of the lower price.
(b) The NFO investor gets 1,000 units and the friend gets 200 units, but both hold ₹10,000 of value.
(c) The friend gets 500 units.
(d) The NFO investor gets 100 units.

Show the solution

NFO units = ₹10,000 ÷ ₹10 = 1,000 units.
Existing scheme units = ₹10,000 ÷ ₹50 = 200 units.
Both investors paid ₹10,000, so each holds ₹10,000 worth of the scheme at that price.
A lower unit price does not make an NFO cheaper. So option (a) is wrong.
Options (c) and (d) have wrong unit counts. Only (b) is correct.

Answer: (b)

Example 2

An open-ended scheme's NFO closes on a Monday. There are no holidays. By which day must units be allotted or money refunded?
(a) The following Wednesday
(b) The same Friday
(c) The following Monday
(d) The Monday after that

Show the solution

The rule is 5 business days from closure of the NFO.
Count from the next business day: Tuesday (1), Wednesday (2), Thursday (3), Friday (4), the following Monday (5).
The last day is the following Monday.
Wednesday and Friday are before the 5th business day. The Monday after that is the 10th business day.

Answer: (c) The following Monday

Exam tips

Memorise the numbers 15 days, 5 business days and ₹10 first. Most direct questions use them.
Watch for trap words such as calendar days, always and never.
For unit calculations, do simple division and check whether the options include a wrong figure from multiplying instead.
If the question mentions expenses, ask who bears them. The AMC bears initial issue expenses.
Separate open-ended and closed-ended outcomes: reopening versus listing.

Practice questions from Scheme Related Information

New Fund Offer (NFO) Process and Allotment: frequently asked questions

What is the difference between an NFO and an existing mutual fund scheme?

An NFO is the first offer of a new scheme, and units are usually sold at ₹10 each for a short period. An existing open-ended scheme has a portfolio and a NAV, and you can buy or redeem on any business day at the applicable NAV.

What is the NFO allotment timeline under SEBI rules?

The AMC must allot units or refund money within 5 business days of the NFO closing. If a refund is delayed beyond that, interest is payable to investors.

How long can an NFO stay open?

The subscription period of an NFO cannot exceed 15 days. The AMC may close it earlier, as stated in the offer document.

Who pays the expenses of launching an NFO?

The AMC pays the initial issue expenses from its own resources. They are not charged to the scheme or the unit holders. This is a common NISM question.