Of course installation of compatible .NET Framework version is required. In can be of the same version as the target .NET version your product targets, or any later version.
You can declare the framework as the prerequisite to your installation and specify in your installation that it won't run unless this requirement is met. Alternatively, you can freely deploy .NET with your product, as .NET is designed to be freely re-distributable. Please start here:
The implementation detail depends on the installation toolkit and installation project type you use. Most of them allow both approaches: prerequisite check up and .NET deployment with the application.