What is a 'New Fund Offer - NFO'

A new fund offer (NFO) is the first subscription offering for any new fund offered by an investment company. A new fund offer occurs when a fund is launched, allowing the firm to raise capital for purchasing securities. Mutual funds are one of the most common new fund offerings marketed by an investment company. The initial purchasing offer for a new fund varies by the fund’s structuring.

BREAKING DOWN 'New Fund Offer - NFO'

A new fund offer is similar to an initial public offering. Both represent attempts to raise capital to further operations. New fund offers can be accompanied by aggressive marketing campaigns, created to entice investors to purchase units in the fund. New fund offers often have potential for significant gains after beginning to trade publicly.

Fund Offerings

Mutual funds are the most common type of new fund offering. New fund offerings can be for open-end or closed-end mutual funds. New exchange traded funds are also first offered through a new fund offering. Below are details on how to invest in a few of the market’s common types of new fund offerings.

Open-End Fund

In a new fund offer, an open-end fund will announce new shares for purchase on a specified launch day. Open-end funds do not limit their number of shares. These funds can be bought and sold from a brokerage firm on their initial launch date and thereafter. The shares do not trade on an exchange and are managed by the fund company and/or fund company affiliates. Open-end mutual funds report net asset values daily after the market’s close.

Fund companies can launch new fund offers for new strategies or add additional shares classes to existing strategies. One example of a new open-end fund launch is VanEck’s offering of two new share classes in the VanEck Morningstar Wide Moat strategy (Class I shares: MWMIX; Class Z shares: MWMZX).

Closed-End Fund

Closed-end new fund offers are often some of the most highly marketed new fund issuances since closed-end funds only issue a specified number of shares during their new fund offer. Closed-end funds trade on an exchange with daily price quotes throughout the day. Investors can buy closed-end funds on their launch date through a brokerage firm. (See also Closed-End vs. Open-End Funds.)

One example of a new closed-end fund offer is the Dreyfus Alcentra Global Credit Income 2024 Target Term Fund (DCF). The Fund raised $140 million from its new fund offer.

Exchange-Traded Fund

New exchange-traded funds (ETFs) are also launched through a new fund offer. On November 9, 2017, Vanguard launched the Vanguard Total Corporate Bond ETF (VTC). The new fund offer increased the firm’s U.S. fixed income fund offerings to 17 ETFs. The new ETF is an index fund that seeks to replicate the holdings and performance of the Bloomberg Barclays U.S. Corporate Bond Index by investing in the Vanguard Short-Term Corporate Bond ETF (VCSH), Vanguard Intermediate-Term Corporate Bond ETF (VCIT) and Vanguard Long-Term Corporate Bond ETF (VCLT). It trades on the NASDAQ stock exchange with an expense ratio of 0.07%.

Launches and Alerts

Often, new fund offers are not widely publicized making them challenging to identify. Companies must register a new fund offering with the Securities and Exchange Commission (SEC) offering one method of tracking. Investors seeking information on new fund offers prior to their launch date may also receive alerts from their brokerage firm. News outlets and news aggregators are also a good source for information on new fund offers. Sources such as the Closed-End Fund Center provide details on new fund offers. Companies will also issue press releases on new fund offers. For example, Vanguard issued a press release in August 2017 announcing the launch of the Vanguard Total Corporate Bond ETF in November 2017.

RELATED TERMS
  1. Family of Funds

    A family of funds includes all the funds managed by one investment ...
  2. Fund Company

    Fund company is a commonly used term to describe a corporation ...
  3. Closed-End Management Company

    A closed-end management company is an investment company that ...
  4. Foreign Fund

    A mutual fund, closed-end fund or exchange-traded fund that invests ...
  5. Dual Purpose Fund

    A fund created by a closed-ended investment company that offers ...
  6. Premium to Net Asset Value

    Premium to net asset value (NAV) is a pricing situation that ...
Related Articles
  1. Investing

    Open Your Eyes To Closed-End Funds

    Although less popular than their open-ended counterparts, these investment vehicles are worth a second look.
  2. Investing

    Closed-End vs. Open-End Funds

    Open-end products may be a safer choice than closed-end, but closed-end funds might produce a better return.
  3. Financial Advisor

    Why You Should Consider These Closed-End Funds

    Advisors looking to recommend closed-end funds to clients might want to consider ones that have withstood the test of time. Here are a few examples.
  4. Investing

    Closed-End Vs Open-End Funds

    Much like an individual’s wardrobe, many portfolios are collections of separate items. They combine stocks and bonds and other investments into one product.
  5. Investing

    What Are the Advantages of Closed-End Funds?

    Often forgotten, closed-end funds are publicly traded and can be found on the secondary market.
  6. Investing

    Pros & Cons Of Bond Funds Vs. Bond ETFs

    Understanding the pros and cons of bond funds and bond ETFs will help you choose the instrument that is best for building your diversified bond portfolio.
  7. Investing

    A Brief History of the Mutual Fund

    This popular investment vehicle has seen its share of ups and downs, successes and scandals.
  8. Financial Advisor

    When is a Mutual Fund the Best Investment Option?

    ETFs and their multitude of strategies are super-popular, but when it a good old mutual fund the best choice?
  9. Investing

    Mutual Funds: Does Size Really Matter?

    The growth of mutual funds isn't always cause for celebration. Read on to find out why.
  10. Investing

    Studying Financial Sector: XLF (ETF) vs. VFAIX (Mutual Fund)

    Explore the similarities and differences between securities that are exposed to the financial sector, XLF and VFAIX.
RELATED FAQS
  1. What risks are associated with a closed end investment?

    Explore the characteristics of closed-end funds as compared to open-end funds, and understand the risks associated with investing ... Read Answer >>
  2. What Was the First Mutual Fund?

    Many trace the creation of the first mutual fund back to Dutch merchant Adriaan Van Ketwich. Read Answer >>
Hot Definitions
  1. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  2. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
  3. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  4. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  5. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  6. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
Trading Center