10.2 New Fund Offer Price and Ongoing Offer Price for Subscription

Pricing During the NFO

Units in a New Fund Offer are typically offered at the face value of INR 10 per unit.

The face value is a starting reference point, nothing more. It does not indicate that the scheme is cheap and it does not create any advantage. An investor putting INR 1,00,000 into an NFO at INR 10 receives approximately 10,000 units; the same amount into an established scheme at NAV INR 250 receives 400 units. Both hold INR 1,00,000 of the same kind of asset.

Stamp duty at 0.005% is deducted before allotment, so the units allotted are computed on the net amount.

The Ongoing Offer Price

Once an open-ended scheme reopens for continuous sale — within five business days of allotment — the price at which units are sold is:

Ongoing offer price = Applicable NAV

There is nothing added. Because entry load has been prohibited since August 2009, the sale price equals NAV, and the concept of a "sale price" distinct from NAV no longer exists in the Indian market.

This was not always so. Before 2009 the sale price was NAV plus entry load, so an investor subscribing INR 1,00,000 to a scheme with a 2.25% entry load bought units worth INR 97,750. Older textbooks contain formulae for computing sale price from NAV and load; those formulae are now of historical interest only, and a candidate who applies them will get contemporary questions wrong.

The Repurchase Price

The corresponding position on redemption:

Repurchase price = Applicable NAV, from which any exit load is deducted from the proceeds

As section 8.4 established, units are redeemed at NAV and the exit load is deducted from the amount payable. NAV itself is not reduced for load.

Close-Ended Schemes Have No Ongoing Offer

A close-ended scheme issues units only during the NFO. Because there is no ongoing repurchase, SEBI requires the units to be listed on a stock exchange, and that listing is the investor's only exit route before maturity.

The market price is set by supply and demand, not by NAV. Listed close-ended schemes commonly trade at a discount to NAV, sometimes a substantial one, because the units are illiquid and no arbitrage mechanism forces convergence. An investor in a close-ended scheme who needs to exit early may therefore realise materially less than the NAV published on that day.

This is a genuine and frequently under-disclosed risk. A distributor selling a close-ended scheme must explain that early exit is at market price, not NAV, and that the two can diverge.

Interval Schemes

Interval schemes sit between the two. Units are available for purchase and redemption at NAV, but only during pre-specified transaction periods. Outside those windows the only route is the exchange, at market price, exactly as for a close-ended scheme.

Summary of Pricing

The single most examinable line: for an open-ended scheme in India today, the price is the NAV — nothing is added on purchase, and any exit load is taken from the proceeds rather than from the NAV.

The Ongoing Offer Period

An open-ended scheme's ongoing offer period begins when it reopens after the NFO and, in principle, never ends. During it:

• Units are available for purchase on every business day at the applicable NAV
• Units may be redeemed on every business day at the applicable NAV
• Minimum amounts for purchase, additional purchase and redemption apply as stated in the scheme documents
• Systematic facilities may be registered

An AMC may suspend fresh subscriptions into a scheme temporarily, most commonly where a small cap scheme has reached the size at which further inflows would be difficult to deploy without moving prices. This restricts purchases only; existing investors may continue to redeem, and in most such cases systematic instalments already registered are allowed to continue.

A related restriction now arises from the NFO deployment rule: an AMC that has failed to deploy NFO proceeds within the prescribed period faces restrictions on accepting fresh flows into that scheme until deployment is complete.

What Determines the Applicable NAV

The phrase "applicable NAV" carries specific content, developed fully in section 10.8. In outline:

The purchase side is the one that surprises investors, because the money must actually be with the scheme, not merely on its way. A distributor who promises a specific day's NAV without controlling both conditions has made a promise they cannot keep.

Minimum Amounts

Scheme documents state minimum amounts, which typically differ by transaction type — a higher minimum for a first purchase, a lower one for additional purchases, and a lower one still for systematic instalments. Redemption minimums also apply, along with a minimum balance that must remain in the folio; a partial redemption taking the balance below that minimum is generally processed as a full redemption of the remaining units, which occasionally surprises an investor who intended to retain a small holding.