10.1 The New Fund Offer Process

NISM-Series-V-A: Mutual Fund Distributors Certification Examination Exam

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1 Chapter 1: Introduction & Exam Overview

1.1 About the NISM-Series-V-A Examination 1.2 The 12-Unit Curriculum Map and a Study Plan

2 Chapter 2: Investment Landscape

2.1 Investors and Their Financial Goals 2.2 Savings or Investments? 2.3 Different Asset Classes 2.4 Investment Risks 2.5 Risk Measures and Management Strategies 2.6 Behavioural Biases in Investment Decision Making 2.7 Risk Profiling 2.8 Asset Allocation and Do-It-Yourself versus Professional Help

3 Chapter 3: Concept and Role of a Mutual Fund

3.1 Concept of a Mutual Fund 3.2 Classification of Mutual Funds 3.3 Growth of the Mutual Fund Industry in India

4 Chapter 4: Legal Structure of Mutual Funds in India

4.1 Structure of Mutual Funds in India 4.2 Key Constituents of a Mutual Fund 4.3 AMC Organisation Structure and Service Providers 4.4 Role and Function of AMFI

5 Chapter 5: Legal and Regulatory Framework

5.1 Role of Regulators in India 5.2 Role of SEBI and the Mutual Fund Regulations 5.3 Due Diligence Process by AMCs for Distributors 5.4 Investor Grievance Redress Mechanism 5.5 AMFI Code of Conduct for Intermediaries

6 Chapter 6: Scheme Related Information

6.1 Mandatory Documents I: Scheme Information Document and Statement of Additional Information 6.2 Mandatory Documents II: Key Information Memorandum and the Advertisement Code 6.3 Non-Mandatory Disclosures

7 Chapter 7: Fund Distribution and Channel Management Practices

7.1 The Role and Importance of Mutual Fund Distributors 7.2 Different Kinds of Mutual Fund Distributors 7.3 Modes of Distribution 7.4 Pre-requisites to Become a Distributor of a Mutual Fund 7.5 Revenue for a Mutual Fund Distributor 7.6 Commission Disclosure Mandated by SEBI 7.7 Distributors versus Investment Advisers, Nomination Facilities and Change of Distributor

8 Chapter 8: Net Asset Value, Total Expense Ratio and Pricing of Units

8.1 Fair Valuation Principles 8.2 Computation of Net Assets of a Scheme and NAV 8.3 Dividends and Distributable Reserves 8.4 Entry and Exit Load and Its Impact on NAV 8.5 The Expense Ratio Framework: Base Expense Ratio, Brokerage and Statutory Levies 8.6 Key Accounting and Reporting Requirements 8.7 NAV, Total Expense Ratio and Pricing of Units for the Segregated Portfolio

9 Chapter 9: Taxation

9.1 Applicability of Taxes in Respect of Mutual Funds 9.2 Capital Gains on Mutual Fund Units 9.3 Dividend (IDCW) Income and Tax Deducted at Source 9.4 Stamp Duty and Securities Transaction Tax on Mutual Fund Units 9.5 Setting Off Capital Gains and Losses under the Income Tax Act 9.6 Tax Benefit under Section 80C and Applicability of GST

10 Chapter 10: Investor Services

10.1 The New Fund Offer Process 10.2 New Fund Offer Price and Ongoing Offer Price for Subscription 10.3 Investment Plans and Services 10.4 Allotment of Units and Account Statements 10.5 Mutual Fund Investors: Who Can Invest 10.6 Filling the Application Form for Mutual Funds 10.7 Financial Transactions with Mutual Funds 10.8 Cut-Off Time and Time Stamping 10.9 KYC Requirements for Mutual Fund Investors 10.10 Systematic Transactions and Their Operational Aspects 10.11 Non-Financial Transactions, Special Investor Categories and Turnaround Times

11 Chapter 11: Risk, Return and Performance of Funds

11.1 General and Specific Risk Factors 11.2 Factors That Affect Mutual Fund Performance 11.3 Drivers of Returns and Risk in a Scheme 11.4 Measures of Returns 11.5 SEBI Norms Regarding Representation of Returns 11.6 Risks in Fund Investing: The Investor's Perspective 11.7 Measures of Risk and Provisions Relating to Credit Risk

12 Chapter 12: Mutual Fund Scheme Performance

12.1 Benchmarks and Performance 12.2 Price Return Index or Total Return Index 12.3 Basis of Choosing an Appropriate Performance Benchmark 12.4 Benchmarks for Equity Schemes 12.5 Benchmarks for Debt Schemes and Other Schemes 12.6 Quantitative Measures of Fund Manager Performance 12.7 Tracking Error and Scheme Performance Disclosure

13 Chapter 13: Mutual Fund Scheme Selection

13.1 Scheme Selection Based on Investor Needs, Preference and Risk Profile 13.2 Risk Levels in Mutual Fund Schemes 13.3 Scheme Selection Based on Investment Strategy 13.4 Selecting a Scheme Across AMCs or Within a Scheme Category 13.5 Selecting Options in Mutual Fund Schemes and Do's and Don'ts

10.1 The New Fund Offer Process

Key Takeaways Explain This Topic AI

An NFO may remain open for a maximum of 15 days, with 30 days permitted for ELSS.

Units must be allotted, or subscription money refunded, within five business days of NFO closure.

An open-ended scheme must reopen for ongoing sale and repurchase within five business days of allotment.

NFO proceeds must be deployed within 30 business days of allotment, extendable once by the Investment Committee.

A scheme must maintain at least 20 investors, with no single investor holding more than 25% of the corpus.

Last updated: August 2026

What an NFO Is

A New Fund Offer (NFO) is the window in which units of a newly launched scheme are offered to investors for the first time. Before it opens, the AMC files the scheme documents with SEBI, obtains observations, incorporates them, and publishes the SID, SAI and KIM.

Timelines

Stage Requirement
NFO period, maximum 15 days
NFO period for ELSS 30 days
Allotment of units or refund Within 5 business days of NFO closure
Open-ended scheme reopens for ongoing sale and repurchase Within 5 business days of allotment
Deployment of NFO proceeds Within 30 business days of allotment

AMCs have flexibility to extend or shorten the NFO period within these limits based on market conditions, except for ELSS , where the period is fixed.

If the scheme fails to raise the prescribed minimum subscription amount , the entire subscription must be refunded within the allotment window, with interest payable for any delay beyond it.

The Deployment Rule Introduced in 2025

This is a recent and significant addition, effective 1 April 2025 , and material predating it does not contain it.

AMCs must deploy the money collected in an NFO within 30 business days from the date of allotment .

Where an unavoidable delay occurs, the matter must be referred to the Investment Committee , which may grant an extension of up to a further 30 business days after examining the reasons and ensuring corrective measures.

The Investment Committee is expected not to grant an extension where the assets the scheme is to buy are liquid and readily available.

An AMC that fails to deploy within the timeline faces restrictions on accepting fresh flows into the scheme until deployment is complete.

Beyond 60 business days of non-compliance, exit loads may not be charged , and investors may exit the scheme without charge.

The policy purpose is stated openly: to make AMCs collect only as much as they can sensibly deploy , and to discourage mis-selling of NFOs. Large sums raised on the strength of a marketing campaign, then held in cash while the manager waits for an entry point, harm the very investors who subscribed.

The 20-25 Rule

Every scheme must maintain, on an ongoing basis:

A minimum of 20 investors , and
No single investor holding more than 25% of the scheme's corpus

This prevents a scheme becoming, in substance, a portfolio management arrangement for one or two large investors while carrying the regulatory advantages of a mutual fund. Breaches must be cured within the prescribed period, failing which the scheme is wound up and the money returned.

Why NFOs Are Frequently Mis-Sold

The syllabus is direct about this, and the exam tests whether a candidate can resist the standard sales arguments.

"It's available at INR 10, so it's cheap." Wrong, and the most common misrepresentation in the industry. NAV per unit is a function of the scheme's age and distribution history, not of how expensive the underlying securities are. A new scheme buying the same stocks as an existing scheme at NAV INR 340 offers identical value; the investor simply receives more units, each worth less.

"Get in at the start." There is no advantage to being early into an open-ended scheme. Units can be purchased at NAV on any business day thereafter, and by then the scheme has an actual portfolio and a track record, however short.

"It's a new idea you can't get elsewhere." Occasionally true — a genuinely new category or an unrepresented asset class. Far more often, the new scheme sits in a category where the fund house already has, or the market already offers, several established options with performance records.

The case against an NFO, stated plainly

Existing scheme New fund offer
Visible track record None
Portfolio you can inspect today No portfolio yet
Known expense ratio in practice Cap known; actual unknown
Manager's approach demonstrable Stated intention only

When an NFO is genuinely worth considering: it offers a strategy, asset class or structure the investor cannot otherwise access; a close-ended or fixed-maturity structure suits the investor's specific horizon; or a passive scheme tracks an index no existing fund covers.

Those are real reasons. "NAV is INR 10" is not one, and a distributor who uses it has misrepresented the product.

The Deployment Discipline

A rule introduced with effect from 1 April 2025 closed a long-standing gap between raising money in an NFO and putting it to work. An AMC must deploy the funds collected in a new fund offer within 30 business days of allotment, in line with the asset allocation stated in the scheme documents.

Where it cannot, the position must be reported to the trustees with reasons, and a defined extension route applies; if the money is still undeployed after the permitted period, the AMC may not accept fresh subscriptions into the scheme and may not charge exit load on investors who choose to leave.

The rule matters for two reasons a distributor can explain plainly. First, an investor who subscribes to an equity NFO is buying an equity exposure, not a cash holding, and should get it within a defined period. Second, it removes the incentive to collect a large corpus at a convenient moment and deploy it slowly at the manager's discretion, which is an allocation decision the investor never authorised.

What to Check Before Recommending an NFO

Is there an existing scheme in the same category with a track record? If so, what does the NFO offer that it does not?

What is the stated asset allocation , and does it match the investor's need rather than the market's current enthusiasm?

Who manages it , and what is their record on comparable mandates?

What is the exit load structure and the minimum investment?

Is the theme durable or a response to a sector that has already run?

An NFO in a genuinely new category, or one filling a gap in the investor's allocation, passes these tests. An NFO whose principal attraction is that it is new does not, and the honest recommendation in that case is the existing scheme with a record.