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.

Understanding New Fund Offers (NFOs)

A new fund offer is similar to an initial public offering (IPO). 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 the potential for significant gains after beginning to trade publicly.

Types of New Fund Offers

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.

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

Exchange-Traded Fund

New exchange-traded funds (ETFs) are also launched through a new fund offer. An exchange-traded fund is a type of investment fund that can be publicly traded on the stock market. On April 7, 2021, Vanguard launched the Vanguard Ultra-Short Bond ETF (VUSB). According to Vanguard, the "objective is to seek to provide current income while maintaining limited price volatility. The fund invests in a diversified portfolio of high-quality and, to a lesser extent, medium-quality fixed-income securities. The fund is expected to maintain a dollar-weighted average maturity of 0 to 2 years."

VUSB has a low expense ratio of 0.10%.

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 good sources for information on new fund offers. Sources such as the provide details on new fund offers. Companies will also issue press releases on new fund offers. For example, you can find Vanguard's statement on the launch of their latest ETF on their website.

One of the most talked-about exchange-traded fund launches in recent years came in October 2021, when trading began on the very first bitcoin-related ETF, ProShares Bitcoin Strategy ETF (BITO).

Advantages and Disadvantages of an NFO

Investing in a new mutual fund may seem like an exciting way to diversify your portfolio, however, there are some concerns you should know about before doing so. For example, many investment companies launch a new fund when the market is rich and investors are hungry to get in on the latest new industry or sector of the economy. However just because a certain technology or industry is booming now does not mean it will remain popular in the future. Furthermore, a new fund offer often comes with a higher expense ratio than normal. Another big risk of investing in an NFO is also one of the most obvious—the fund has no track record of success (or failure). While some bullish investors may look at this as an opportunity for large profits, there is also a serious risk in investing in a fund whose performance you cannot track.