What It Means
An NFO (New Fund Offer) is the initial subscription period during which a fund house sells units of a brand-new mutual fund scheme to investors for the first time, before it starts trading in the open market like an existing fund. It's the mutual fund equivalent of a company's IPO, though what you're buying into is a portfolio the fund manager hasn't built yet, not shares in an existing business.
How It Works
Every NFO is priced at a flat ₹10 per unit, regardless of the scheme's category or strategy, and that ₹10 has no relationship to whether the fund is "cheap." Once the NFO window closes (typically after a couple of weeks) and the fund starts investing the money it raised, its NAV becomes market-linked and moves with its actual portfolio's performance, no different from any existing fund from that point on.
Warning
A common mistake is assuming an NFO's flat 10 rupee NAV makes it cheaper than an existing fund trading at, say, 150 rupees. NAV has nothing to do with value for money in either case; an existing fund already has a track record and a real portfolio you can evaluate, a new NFO doesn't, since it hasn't invested the money yet.