📘 11.1 New Fund Offer (NFO)
📌 What is an NFO?
The New Fund Offer (NFO) is the first time investors can invest in a mutual fund scheme. When a mutual fund product is launched, it begins with an NFO, allowing investors to subscribe to units of the fund at a face value price during the NFO period. Typically, the NFO lasts for up to 15 days.
💡 Allotment of Units
Once the NFO period closes, the fund enters a “no transaction period” for about 5 days. During this time, the mutual fund creates investor folios, banks cheques, returns bounced cheques, and prepares the final list of unit holders. Afterward, the fund begins allotting units at the face value price and declares its NAV.
💡 Use of NFO Proceeds
The proceeds from the NFO are used to construct the investment portfolio. All investments are made only after the closure of the NFO period.
📘 11.2 On-going/ Continuous Offer
📌 Ongoing Offer Explained
After the NFO closes, mutual funds enter an ongoing offer period. During this period, investors can continuously buy and redeem units based on the NAV. For liquid funds, the NAV is declared daily, while other funds update NAV on business days. These transactions are based on the NAV of the fund, allowing continuous purchases and redemptions.
📘 11.3 Computation of Net Asset Value (NAV)
📌 NAV Calculation
The NAV is calculated using the following formula:
NAV = (Market value of the portfolio – Expenses and liabilities) / Number of units outstanding
The NAV is computed daily and is essential for determining the value of transactions such as purchases and redemptions. It is updated and used for all investment transactions, ensuring transparency in the mutual fund’s value.
📘 11.4 Applicable NAV
📌 How NAV is Applied
The NAV applicable to a transaction depends on the timing of the transaction request and the date it is processed. A time stamp is critical for fairness, ensuring that each transaction is processed at the correct NAV.
📘 11.5 Time Stamping and Risk Control
📌 Time Stamping and Risk Mitigation
Time stamping is a key process for recording the exact time of each transaction. This ensures accurate and fair NAV application for all transactions. SEBI mandates that the time of receipt of each transaction is stamped for precise NAV calculation.
📘 11.6 Cut-Off Time
📌 Understanding Cut-Off Times
The cut-off time is the designated time by which a transaction request must be received to be processed at that day’s NAV. Different schemes may have different cut-off times, especially for liquid funds, which can have earlier cut-off times for faster processing.
📘 11.7 Segregated Portfolios
📌 What Are Segregated Portfolios?
Segregated portfolios, also known as side pockets, are created when part of a portfolio faces a credit event (such as a downgrade or default). This segregation ensures that the rest of the investors’ funds are protected, and the assets are segregated for fair treatment.
📘 11.8 Investing in Mutual Funds through Stock Exchanges
📌 Stock Exchange Transactions
Investors can also buy and sell mutual fund units through stock exchanges like NSE and BSE. This process offers transparency, reduces paperwork, and enables transactions to be handled efficiently on recognized platforms.
📘 11.9 Holding Units in Dematerialized Form
📌 Demat Mode for Units
Investors can choose to hold their mutual fund units in dematerialized (demat) form. This option simplifies trading, transferring, and managing investments in a paperless, electronic format. It’s ideal for investors who prefer the ease of managing their investments digitally.
📘 11.10 Role of RTA in Tax Computation
📌 RTA’s Role in Taxation
The Registrar and Transfer Agent (RTA) plays a critical role in calculating tax liabilities for mutual fund investors. This includes calculating Tax Deducted at Source (TDS) for NRIs, Dividend Distribution Tax (DDT), and Securities Transaction Tax (STT) for equity mutual fund transactions.
📘 11.11 Reporting Requirements to Central Board of Direct Taxes (CBDT)
📌 Tax Compliance Reporting
RTAs are responsible for ensuring that mutual fund transactions comply with tax regulations like FATCA and CRS. They report the necessary data to CBDT to facilitate cross-border tax compliance and reporting.
