On-going offer
Also written Ongoing offer · Continuous offer · Continuous offer period · Ongoing sale of units
The continuous, post-NFO period in which an open-ended scheme sells and redeems units at NAV-linked prices on an ongoing basis — the pricing mechanism the workbook shows keeps every investor's holding fair.
In plain language
Once a new fund offer closes and units are allotted, an open-ended scheme does not stop transacting — it moves into what the workbook calls the on-going or continuous offer. From this point on, the fund itself stands ready to sell new units and buy back existing ones, every business day, at a price tied to the portfolio's actual value.
A closed-end scheme has no such phase: once its NFO closes, the fund does not sell fresh units again until it winds up, and an investor who wants out has to find a buyer on the stock exchange instead.
How it works
During the on-going offer period, purchases and redemptions happen at NAV-related prices. For liquid funds, NAV is calculated and declared every calendar day; for every other kind of scheme, it is calculated and declared every business day.
Only an open-ended fund can be bought fresh from the AMC during this phase; a closed-end fund cannot issue new units after its NFO, though it may allow redemptions in specified windows under an interval fund structure, and its units otherwise trade only on the exchange where compulsory listing makes an exit possible.
The workbook's own worked illustration is why pricing has to be NAV-linked rather than fixed. An investor buys 1 unit at Rs 10 in the NFO. The portfolio then appreciates 10 percent, taking NAV to Rs 11. If a second investor were now allowed to buy a fresh unit at the old Rs 10 price, total assets would be Rs 21 held across 2 units — NAV falls to Rs 10.50, diluting the first investor's gain purely because of when the second one bought in. Priced instead at the current NAV of Rs 11, total assets become Rs 22 across 2 units and NAV stays exactly Rs 11 — fair to both.
When the phase begins. The dates in front of it are all in the same chapter. An NFO for mutual funds, except ELSS, is open for a period of not more than 15 days. Once it closes there is a no-transaction period, usually 5 days, in which folios are created, cheques are banked and bounced cheques returned, and the register of unit holders is finalised. Allotment currently happens within 5 business days of the NFO close date — 30 days for ELSS — and the date of allotment is the scheme's inception date, when NAV is set at face value. A scheme must then open for transactions within 5 working days of allotment. On-going offer is what starts at that point, which is why it is not the same thing as "the day after the NFO shuts".
The exchange route. Listing is compulsory for close-ended schemes, and their investors transact among themselves, in dematerialised mode, on the stock exchange platform — the fund is not a counterparty there. A close-ended scheme has a fixed term, at the end of which all units are redeemed.
Cross-reference, not from this workbook: Series XXI-B's workbook states the NFO window flatly as 15 days, where II-B says not more than 15 days and carves out ELSS. Answer II-B's wording in an II-B paper.
A worked example
A flexi cap scheme completes its NFO at Rs 10 per unit and enters on-going offer. A year later its NAV has risen to Rs 15, reflecting the portfolio's actual performance.
Mrs Iyer buys Rs 1,50,000 at NAV Rs 15: she gets 10,000 units, exactly the stake an original NFO investor holding 10,000 units already has, buying in at the price the fund is genuinely worth today.
Had the fund instead let her in at the old Rs 10 NFO price, she would get 15,000 units for the same Rs 1,50,000 — diluting every existing unit holder's NAV, purely as a transfer of value from old investors to her. NAV-linked pricing during the on-going offer is exactly what stops that from happening.
Why NISM asks about it
Chapter 11 (Operational Concepts of Mutual Funds), section 11.2, is titled "On-going/ Continuous Offer" and works through the dilution arithmetic (Rs 10 to Rs 11 to Rs 10.50) as its central illustration; section 11.1 immediately before it supplies the NFO dates the phase starts from — the 15-day NFO cap, the 5-day no-transaction period and the inception-date NAV. A sample question asks directly what price basis governs on-going purchases and redemptions of open-ended funds: Net Asset Value. Expect the same point under either name, since other NISM workbooks call it only the continuous offer.
Common exam traps
- Closed-end funds do not sell fresh units in an on-going offer — only open-ended funds do; a closed-end fund's only "ongoing" route to liquidity is the stock exchange, or an interval fund's specified transaction window.
- Liquid funds compute NAV every calendar day; all other schemes, every business day. This distinction feeds directly into cut-off and applicable-NAV rules elsewhere.
- Pricing anything below current NAV during on-going offer dilutes existing unit holders — the workbook's own worked illustration is built to make this concrete, not just asserted.
- On-going offer starts only after allotment and the scheme's re-opening, not immediately when the NFO closes — the no-transaction period and allotment sit in between.
- The NFO window is capped, the on-going offer is not. An NFO runs for not more than 15 days (ELSS excepted); an open-ended scheme's on-going offer has no end date and lasts the life of the scheme.
- On-going offer price is NAV-linked, not the NFO price carried forward. The fixed Rs 10 NFO price applies only inside the NFO window; NAV equals face value only on the inception date.
- "Continuous offer" is the same thing under a different name. The workbook's own heading for section 11.2 is "On-going/ Continuous Offer", and other NISM workbooks use only the second name.
Check yourself
1.During the New Fund Offer (NFO) the investors buy mutual fund units at:
- a)NFO Price
- b)NAV
- c)Market Price
Show the answer
Answer: (a) NFO Price
During the NFO period (open date to close date) the units are purchased at the NFO price.
A fixed price, because there is as yet no portfolio to value.
NAV only begins afterwards. The fund begins to declare its NAV from the next day of allotment. The date of allotment is the inception date of the fund, when its NAV is set at face value.
So NAV starts at face value — usually Rs. 10 — precisely because the NFO price was that figure.
Option B applies from the on-going offer: on-going or continuous offer indicates that transactions are resumed in a fund after the allotment is over. Purchases and redemptions of units happen at NAV related prices during the on-going offer period.
Option C applies to listed close-ended units traded between investors, which change hands at the price prevailing in the stock market.
Other NFO facts worth carrying. The NFO for mutual funds (except ELSS) are open for a period not more than 15 days. Applicants must be KYC complied with completed application form with the prescribed documentation and the requisite investment amount. And applications in NFO can also be made using Application Supported by Blocked Amount (ASBA) facility.
What follows the close: a 'no transaction period' (usually 5 days) in which the investors' account folio details are created, cheques are banked, bounced cheques are returned, and the final list of unit holders... is created.
And the money waits: the mutual fund shall make investments out of the NFO proceeds only on or after the closure of the NFO period.
**Note also that the cut-off timing table is not applicable to... New Fund Offers (NFOs) — a further sign that NFO pricing works differently.
2.On-going purchases and redemptions of open ended funds have to be based on which of the following?
- a)Net Asset Value
- b)Cost Price
- c)Unit Price
Show the answer
Answer: (a) Net Asset Value
Purchases and redemptions of units happen at NAV related prices during the on-going offer period, and ongoing purchases and redemptions have to be based on NAV.
Why, in one illustration. An investor buys 1 unit in a scheme during NFO at Rs. 10. There is a 10 percent appreciation in portfolio after that. Therefore, NAV goes up to Rs. 11. What happens if a new investor is allowed to buy another unit at Rs. 10? The total assets of the fund will be Rs. 21, and NAV drops to 21/2 = Rs. 10.50 per unit.
The first investor loses 50 paise to the second — value transferred by an under-priced sale.
Sold correctly: if the new unit was purchased at Rs 11, total net assets would be Rs. 22 and the NAV remained unchanged at Rs. 11 per unit.
Hence the principle: to be fair to both investors, the price charged to investors for buying or selling units has to be based on NAV.
Which is why options B and C fail. A historical cost price ignores everything that has happened since; and "unit price" in an open-ended fund simply is the NAV-related price.
The chapter makes the same point in the NAV formula. Any increase in outstanding units in the denominator without a corresponding increase in the numerator representing the investment of funds received, will depress the NAV.
Closed-end funds are the exception, and prove the rule. No new purchases from the fund can happen in case of closed-end mutual funds — so the question of pricing against NAV does not arise, and their listed units trade at the price prevailing in the stock market, which may be at a discount or premium to the NAV.
And how often the NAV exists: for liquid funds, NAV is calculated and declared every calendar day, whereas NAVs for other than liquid funds are calculated and declared every business day.
Where this is taught
Free preparation for NISM Series II-BRelated terms
- Net Asset ValueThe net assets of a mutual fund scheme divided by the number of units outstanding — what one unit of the scheme is worth on a given day, after every liability except the unitholders' own.
- Close-ended fundA mutual fund scheme that sells units only in its NFO, runs for a fixed period and redeems all units at maturity — in between, investors can exit only by selling on the stock exchange, where listing is compulsory.
- Cut-off timeThe SEBI-prescribed clock time that, read together with the time stamp on the request, decides which day's NAV a mutual fund transaction is priced at.
- New Fund OfferThe period in which a mutual fund scheme's units are offered to the public for the first time, at a fixed NFO price rather than at NAV, and during which the registrar builds the scheme's first register of investors.
- Open-ended fundA mutual fund scheme with no maturity date that keeps selling and redeeming units directly after its NFO, at NAV-linked prices, so its number of units and unit capital change every day.
- Transaction periodThe window during which an interval mutual fund scheme turns open-ended, allowing subscriptions and redemptions, before closing again until the next scheduled window.
- UnitholderA mutual fund investor, represented by the number of units held, who owns a proportional share of the scheme's assets and shares in its profits or losses accordingly.
- Operating cycleThe sequence of steps, from an investor's transaction reaching the Official Point of Acceptance to a new NAV being applied to it, that moves a purchase or redemption through the RTA and AMC systems each day.