Difference Between NFO Vs IPO, Which is Best Investment?

NFO Vs IPO

Updated on 17 Oct, 2023

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Often investors have confusion between Initial Public Offering (IPO) and New Fund Offer (NFO). They presume that both represent similar investment opportunities. Also, both IPO and NFO are primary market offerings. Therefore, it is crucial to understand the difference between NFO and IPO. Read our articles to understand them in detail.

Difference Between NFO and IPO

The following are the differences between NFO and IPO –

Parameters	NFO	IPO
Meaning	A New Fund Offer is the introduction of a new mutual fund scheme by the fund house.	An initial Public Offering is where a company goes public for the first time by issuing shares and also getting listed on the stock exchange.
Purpose	The AMC launches NFO to help the firm raise capital for purchasing securities like equity or bond.	The companies raise capital through IPO to meet their business requirements or reduce the promoter’s stake.
Issued by	Asset Management Company	Companies
Indivisible Unit	Fund units	Shares
Pricing	The NFO is launched at a face value of Rs.10 irrespective of the underlying company’s pricing.	The issuing company’s share price is decided based on the business fundamentals and also valuation.
Valuation	In NFO, the total fund is split into units and also invested in the market.	The company’s valuation is essential and also measured by price to earnings ratio and price to book ratio. Thus, doing the valuation is critical in determining the listing price.
Initial Listing	In NFO, the funds are collected and also invested based on the NAV, which can be above or below the face value.	The IPO is listed on a stock exchange above or below the price band set initially. Therefore, on a listing day, if the prices go up, the investors can make good profits.
After Listing	The NAV of the mutual fund scheme after NFO reflects the current value of the underlying securities in the portfolio. However, it is not the value that reflects the expectation of how the portfolio will grow.	After the IPO is listed, the shares trade on the stock exchange depending on the market participants’ perception of the prospects of the company and also its profitability.
Performance	The investors have nothing to evaluate for NFO in terms of the scheme’s past performance. However, they can look at the performance of other schemes that the fund manager manages and also other schemes of the fund house to understand the fund management philosophy and approach.	The company making an IPO is already in existence and engaged in operations. Thus, investors can get an idea about the company’s fundamental strengths and past performance.
How to Invest?	Investors can invest in NFO on the respective websites of the fund houses/distributors/advisors or also by visiting the fund house.	Investors can subscribe to the IPO only through their Demat account.

What are the Similarities Between NFO And IPO?

Like the difference between NFO and IPO, both NFO and IPO are also similar in some aspects with their fundamentals. They both raise money from the public for further operations. Like IPOs, NFOs are also open for subscription for a fixed period. However, NFO is available for subscription for a much longer period than an IPO.

Similar to IPOs, NFOs also incur marketing costs, administrative costs, legal and compliance costs, etc.

Also, another similarity between NFO and IPO is that both tend to scatter around a period of high growth and stock market returns.

Furthermore, SEBI regulates both NFO and IPO, covering all aspects right from filing the prospectus to monitoring the actual allocation of funds.

Moreover, when the markets are at peaks, both NFO and IPO tend to see more significant subscriptions.

Is NFO a Wise Option To Invest in Mutual Funds?

NFO is an option for many investors to invest in mutual funds. This is because when an NFO is launched, it is available at Rs.10. Therefore, NFO may be a more affordable option when compared to a well-established fund.

However, it is critical to make a well-informed decision about your investment. Whether you are investing in an NFO or a well-established fund, you must invest in the fund that helps you match your financial objectives. Also, the fund’s risk levels must align with your understanding of risk. Otherwise, it is not a wise option to invest in an NFO every time. Hence, it is crucial to understand the terms and conditions before investing in a New Fund Offer.