Continuous offer

A mutual fund scheme is first sold to the public during its New Fund Offer (NFO) — a short window, open for 15 days. After that window shuts, an open-ended scheme does not stop selling units. It keeps taking money in, and keeps letting investors redeem, for as long as the scheme exists.

That ongoing sale, after the NFO is over, is the continuous offer. The price at which units are bought or sold in a continuous offer is not fixed like the NFO price — it moves with the scheme's Net Asset Value, which is declared afresh for every business day.

The workbook places this immediately after describing the NFO: units of a mutual fund are first available when the scheme launches in an NFO, open for 15 days, with payment only through approved modes named in the offer document — cheque, NEFT, RTGS, ASBA and similar online facilities. Investors can invest in open-ended funds after the NFO period too — this sale of units on an ongoing basis is called the continuous offer. The price of units in the continuous offer depends on the NAV of the fund, which is declared for every business day.

Close-ended schemes work differently: their units are mandatorily listed on a stock exchange, and both purchase and redemption of close-ended (and open-ended) units can also happen through that exchange channel — but only if the units are held in dematerialised form.

Illustrative figures. Meridian Flexi Cap Fund, an open-ended scheme, closes its 15-day NFO on 15 January, having collected Rs 250 crore at the NFO price of Rs 10 per unit.

From 16 January onward the scheme is in continuous offer. On 3 March, its NAV is declared at Rs 10.85; an investor putting in Rs 1,08,500 that day receives 10,000 units (Rs 1,08,500 ÷ Rs 10.85). By 20 June, the NAV has risen to Rs 11.40; a different investor buying with the same Rs 1,08,500 receives only 9,517.5 units (Rs 1,08,500 ÷ Rs 11.40), because the continuous-offer price moves with NAV every single business day, unlike the fixed Rs 10 NFO price both investors would have paid had they applied during the original 15-day window.

Chapter 6 (Mutual Funds), in the discussion of purchasing units, sets the NFO's 15-day window against the continuous offer that follows for open-ended schemes, and states that continuous-offer pricing tracks NAV declared daily. Expect a question distinguishing NFO pricing from continuous-offer pricing, or one on the mandatory listing of close-ended units.

• The NFO window is 15 days; the continuous offer has no fixed end date for an open-ended scheme — it runs for the life of the scheme.
• Continuous-offer price tracks NAV, declared every business day — it is not the NFO price carried forward.
• Close-ended schemes must list on an exchange; open-ended schemes are not required to, though both can use the exchange channel if units are held in demat form.
• PAN is mandatory for mutual fund investment, with one exception the workbook states: an individual investor's lump sum or SIP investment not exceeding Rs 50,000 per annum per mutual fund need not carry a PAN.