What is the Difference Between NFO and IPO Online | Espresso

Difference Between NFO And IPO

Companies always need money to operate and to expand their business. Due to this, they often turn to public investors to source this money. Such companies are termed as ‘issuers’ in the stock exchange of India. And an issuer can do this in two ways; through an IPO or an NFO.

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Now, investors often get confused between the two. While both are offerings of the primary share market, the investors must learn the difference between IPO and NFO before investing.

In an IPO, the issuer company offers its shares to the investors through the share market. Whereas in an NFO, the fund units are offered to the investors. To have a detailed view about NFO, IPO and to know the exact difference between IPO and NFO, keep reading below. 

What is an IPO?

You must have heard of Aditya Birla Sun Life AMC Limited recently being listed in the share market for its Initial Public Offering (IPO). Even Zomato listed itself in July 2021. An IPO is a process by which a private company goes public by selling its shares in the stock exchange of India. The issuer company, in this case, could be a young organisation or a start-up that decides on getting listed on the share market and hence, goes public.

The companies take the help of investment banks to underwrite an IPO. Also, these banks then arrange the stocks which get listed on the stock exchanges for IPO investors.

Private companies generally seek the help of IPO investors to:

  • Raise more capital for the company.
  • Monetise the investments of their private shareholders like promoters, private equity investors or the company founders.
  • Enable easy trading of the existing holdings or future capital raising by becoming a public company.

What is an NFO?

Like an Initial Public Offering, NFO is where a mutual fund allows the public to invest in its pool for the first time by issuing a new fund offering. Usually, an asset management company accepts public investments while launching an NFO for purchasing capital assets. The asset management company then keeps the NFO open for a certain period. The probable investors can purchase those funds at a specified cost during that period.

In general, the issuing price of an NFO is ₹10. Upon closing an NFO, investors can buy fund units at the mutual fund scheme's overall net asset value (NAV). Usually, the investors who have invested in an NFO have gained significant post-listing advances.  

What is the Difference Between IPO and NFO?

To make you understand what IPO is and what is NFO better, we’ve created the following table:

 

IPO

NFO

Issued By

Asset management companies or fund houses

Private companies (start-ups, young enterprises, etc.)

Pricing

Generally, ₹10 (irrespective of underlying issuers)

Influenced by the fundamentals of the issuers

Initial Offering

 

Available for public investments on the websites of the fund houses or asset management firms

 

 

Available for public investments only through the stock exchange of India

Indivisible Unit

Fund units

Shares/stocks

Demat Account

 

Not necessary if the investor has no plans for holding the units in a dematerialised form

 

Having a Demat account is compulsory

Conclusion

What an IPO is to stocks/shares, an NFO is to mutual funds. So, if you are now clear about the difference between IPO and NFO, you might be well aware of where to invest. Also, between NFO and IPO investments, remember that if you wish for higher returns, with medium to high risks involved, IPO investments could be the best option for you.

Whereas, if you are looking for a low-risk investment, then NFO is undoubtedly the better bet. Either way, you need to be patient and practical with the investment procedure. Happy investing!

Share Market Knowledge Centre

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Frequently Asked Questions

It is a process by which a private company aims to seek funds from IPO investors to grow its business. To offer IPO stocks, companies need to list themselves in the stock exchange of India.

NFO is a process where an asset management company or a fund house announces a new mutual fund scheme to accumulate capital from the public investors.

The basic difference between the two is that an IPO is for stocks/shares while an NFO is for mutual funds. In an IPO, shares are offered by an issuer at a discounted rate with greater demand. Whereas in an NFO, the units are offered at face value. Therefore, these invested units do not show the definite value of the investment.