Difference between IPO and NFO

 Difference between IPO and NFO

Mutual funds and stocks have their own similarities and differences. Mutual funds are a unique investment tool that gives investors an opportunity to seek capital gains from different sectors and industries. What fund houses do is that they collect money from investors sharing a common investment objective and invest this pool of funds across the Indian and foreign economy. Mutual fund investors also have the option of making small monthly investments at regular intervals instead of making a lump sum investment and exposing their entire investment amount to the vagaries of the equity market. Investors also have the option of referring to an SIP calculator where they can get a fair idea about how much they need to invest monthly in order to get closer to their ultimate financial goal.

What is NFO?

New Fund Offer, abbreviated as NFO is an introductory offer rolled out by an asset management company. It is a pre-launch proposition made available to investors before the mutual fund becomes publicly listed. An NFO is an initiative for the fund house or AMC to purchase securities by selling the new fund’s NAV at discounted rate. An NFO is always available on a first come first serve basis. NFOs are generally close ended offers, they are only available for sale only for a limited period. The discounted price at which investors can purchase fund units is generally set at Rs. 10.

NFOs can be categorized as open ended and close ended. An open ended NFO is generally the one that is made available for the public to buy and sell the fund’s unit. This is generally after the NFO period is over. Here the units may not be available at discounted rates. A close ended NFO is a phase when investors can only purchase units of the mutual fund scheme that is newly launched.  Also, investors cannot exit the mutual fund scheme till its lock in period is over. Close ended NFOs offer less liquidity as compared to open ended NFOs.

What is an IPO?

Initial Public Offering happens when a company has expansion plans or wishes to go international or become a conglomerate. Whenever a company wants to get publicly listed they have to do it through an IPO. Shares are offered at discounted rates to investors. Investors can buy multiple shares or they can even sell them, trade with them at the stock market. However, they need to have a demat account and a trading account to buy/sell shares. Once the IPO is over, the company gets listed publicly after which everyone can buy or sell shares of that company. Depending on investors’ goals they can go for intraday trading or position trading. Intraday trading refers to buying and selling of stocks on a day to day basis to score profits. Position trading refers to buying shares and holding them for a long period and selling them when the stock price is higher than it was when the shares were purchased.

What is the difference between IPO and NFO?

An IPO is offered by a company when it wants to get publicly listed. A fund house launches an NFO when a new mutual fund scheme is available for subscription. IPOs are launched by a company going public whereas NFOs are offered by a fund house or an asset management company. IPO shares are valued taking into consideration the company’s business ethics and marker reputation. NFOs are generally valued at Rs. 10 per fund unit. The money that NFOs raise is utilized to buy securities and investment in money market instruments. The money accumulated from IPO is utilized for expansion and for business expansion and promotion.


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