Before discussing this, let us first understand what an NFO is. Similar to how mobile companies launch new phones and automobile companies introduce new car models, Asset Management Companies (AMCs) such as SBI Funds Management Limited, HDFC AMC, and others launch new mutual fund schemes. This initial launch is referred to as a New Fund Offer (NFO).

Consider a simple illustration. Suppose I take two apples—one cut into small pieces and the other into larger pieces. If I place both bowls in front of someone and ask which one contains more apples, they are likely to choose the bowl with smaller pieces because it appears fuller. However, both bowls contain the same quantity of apple; the difference lies only in the size of the pieces.

This concept is directly comparable to a mutual fund’s Net Asset Value (NAV). An AMC has the flexibility to set the NAV at the time of launch, and it is typically kept low, often at ₹10. A lower NAV does not indicate that the mutual fund is cheaper or available at a discount. Despite this, some distributors or banks may try to persuade investors by saying, “The advantage of an NFO is that you can invest at a low NAV.”