NFO vs IPO: Key Differences and Similarities Explained
09 August 2024
5 min read
00:00 / 00:00
The stock market is one of the top ways to grow your income. It allows you to gain financial freedom and exposure to the stock market. Many stock market investment options are available, but NFO and IPO stand out from others.
It is necessary to know all the details about NFO and IPO before investing your money, as both have many differences apart from the goal of generating and raising funds. Today, we’ll take a closer look at difference between IPO and NFO. These will help you to choose the most suitable investment option for you.
A Closer Look at NFO
A New Fund Offering (NFO) is a significant investment opportunity in the stock market. It is an introduction of a new investment plan (new mutual fund scheme) to an asset management company (AMC), as opposed to an IPO, which enables these firms to accumulate capital from public to invest in financial securities like bonds and equities. It enables investors to participate in new mutual fund schemes, which usually concentrate on particular financial objectives or industries.
Whenever an AMC launches an NFO of a new MF scheme, investors can subscribe to the units of the scheme at an initial offer price, typically for a nominal rate per unit. After the conclusion of the NFO period, the new mutual fund schemes are officially launched where the investors will be able to buy and sell the Mutual fund units at the Net asset value.
Thus, NFO allows the Investors to take advantage of early-stage investment opportunities and possible long-term market growth prospects of the New Mutual Fund schemes.
A Closer Look at IPO & Its Types
AN IPO is a way in which a private company raises capital by offering its shares to the general public for the first time. While IPOs mainly help companies generate capital, it also serve as a tool for the founders, initial investors, and promoters to sell their shares or exit their positions. Furthermore,
The price of the IPOs are set after the investment banks value the the company on various metrics including its financial performance. Once the shares are listed after the IPO, investors can trade them based on which the its price will also fluctuate.
The two main types of IPOs include fixed price and book-building. In the former type of IPO, the company determines the share price. In that, investors have no choice but to accept or reject it. This approach provides the company with complete pricing control.
In contrast, a book building IPO involves a company-set price range between which the investors can bid for the stock, specifying the quantity and price they are willing to pay. Investor demand and bids determine the final share price.
Difference Between NFO and IPO
An NFO and an IPO have many differences despite having similar fundraising goals. You need a deeper knowledge of an IPO and NFO to make the right investment decision. We will explore NFO vs IPO here that will offer you a deeper insight into NFO and IPO.
Features | NFO | IPO |
Definition | An NFO is a mutual fund's first offering. Investors can purchase units from the start. The initial NAV is usually set to INR 10 per unit. | The first time a private company sells shares to the general public is known as an IPO. This procedure allows the company to raise capital by listing on the stock exchange. |
Fund Utilization | The funds raise through NFO are used for investing in various financial assets. | The funds raised through IPO are used for business growth or for promoters to sell their shares |
Issuers | NFO is issued by AMC (Asset Management Companies) or Mutual funds. | IPO is issued by private companies that went public recently. |
Valuation | Valuation is not required for NFOs, unlike IPOs. The funds collected are invested in the market and divided into fund units. | Metrics like P/E and P/BV are used to determine the valuation and attractiveness of a company |
Performance | No data to compare the NFO against. | Can be judged on the basis of the company’s historical performance. |
Risk | NFO is an excellent investment option for those who can handle low to moderate risk. | IPO involves more risk than NFO. It comes from stock market exposure risks. |
Post Listing | NFO starts the operation after the purchasing of market shares by using raised funds. | IPO is listed on the stock exchange for all public investors. |
Returns | The return of an NFO depends upon the underlying asset's performance and growth in the fund. | The return of an IPO majorly depends on the growth and performance of the stocks. |
Demat Account Requirement | No | Yes |
Similarities Between NFO and IPO
NFO and IPO both aim to pool money from public investors to manage their operations.
NFO and IPO both offer fund shares and company shares to public investors to raise capital.
NFO and IPO both have pre-determined pricing for public investors.
NFO and IPO both can experience huge demand during high growth periods.
NFO and IPO are both regulated by SEBI (Securities and Exchange Board of India).
Conclusion
NFO and IPO both are ideal ways to invest money and grow while earning attractive returns. You can choose an IPO if you want to receive a high return on your investment while bearing huge risks.
NFO is ideal for those people whose risk tolerance capacity is from low to moderate. NFO and IPO both have many differences that you need to know so consider all the details and choose the suitable option that works for you.
