NFO Vs IPO – What Should You Choose?

NFO Vs IPO – What Should You Choose?

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Find out the difference between NFO and IPO

Key Takeaways

  • IPOs and NFOs are excellent investment opportunities.
  • IPOs are launched by private companies going public.
  • Fund houses launch NFOs to raise capital to invest in securities and other funds.
  • IPO and NFO investments are relatively risky investments due to the uncertainty after listings.
  • You should consider your risk appetite before investing in either one.

For any company, the ultimate aim is to grow and evolve. To this end, companies need capital. After showing proof of concept and generating profits, most companies attempt to scale by raising funds from the public in exchange for a stake. They raise capital by rolling out IPOs and NFOs. Let us compare IPOs vs NFOs so that you can decide the better investment option for you.

IPO vs NFO – Comparing the differences

Let us first understand their meanings

IPO

An Initial Public Offering (IPO) is a provision launched by a company that wants to raise capital from public investors. The company then uses the money for business expansion, regulating cash flow, etc. In an IPO launch, the company offers shares at relatively low rates on the Primary Market. Once the IPO closes, the company gets listed on the stock exchange or Secondary Market, where investors can buy and sell shares at the market price.

NFO

A New Fund Offer (NFO) is launched by an Asset Management Company looking to add new mutual fund schemes. The NFO is open for a specific time during which investors can purchase units of the new mutual fund schemes at a low issuing price of INR 10. After the NFO closes, investors can invest in the mutual fund by purchasing units at the prevailing Net Asset Value (NAV). Since NFOs offer mutual funds at low prices, post-listing it may yield substantial returns.

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Difference between NFO and IPO

Feature

NFO

IPO

Promoter

Asset Management Companies or Fund Houses

Private Companies

Product Offered

Mutual Fund Units

Shares

Offered By

AMCs and other Mutual Fund promoters

Brokerage Houses Through your Demat account or Trading Account

Funds raised for

Investing in securities and funds

Meeting with business needs

Risks involved with investment

Moderate to low

High market risk

NFO vs IPO – Which Is Better?

The purpose of NFO vs IPO is more or less the same. In both cases, the parent company looks to raise capital. The difference, however, lies in the operational aspects of the two. Which is better, ultimately narrows down to your needs and objective.

As an investor with a lower risk appetite, opting for NFO might be beneficial. In an NFO, fund units are offered at relatively low prices. As such, if an NFO underperforms post-listing, the losses incurred by NFO investors could be minimal.

IPOs too offer shares at lower prices than the exchanges but come with a minimum lot. To increase your chances of being allocated fund units, you have to purchase multiple lots. After getting listed on the stock exchange, the IPO purchase would prove worthwhile if the share price increases. If prices are lower than the offer price, you could face extreme losses too.

Bottom Line

Having compared IPOs vs NFOs, you can decide which is better. Both are excellent investment opportunities, but you should choose the better investment after assessing your risk appetite and financial goals. If these instruments perform well after the respective listing, you stand to earn significant returns.

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*Disclaimer: This article is for information only. We recommend you get in touch with your income tax advisor or CA for expert advice.

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