The investments by the regular public bring funds to the company for expansion and operations. Read about “Difference Between NFO and IPO”
Companies or businesses require funds for expansion and operation of the business. After a certain point, the companies usually look for public investors to invest in the company. The investments by the regular public bring funds to the company for expansion and operation purposes. The companies who want the public to invest in their companies can opt for any of the two methods stated below:
- Through an IPO
- Through an NFO
Now, the question arises, what is the meaning of IPO and NFO and how they differ from each other. In simple words, an IPO company offers shares to investors. However, in the case of NFO, the offer is made in the form of fund units. Let’s get a more clear idea and a broader understanding of the difference between NFO and an IPO.
Meaning of IPO:
Initial Public Offering is the IPO meaning that is the process through which a private company brings or launches its shares in the stock market for the first time. The general public or retail investors can subscribe to these shares via the regulated and structured process. The companies are from diversified sectors.
For Example: Barbeque Nation a known hospitality chain restaurant has come up with its IPO. Every company that is launching its IPO has varied reasons. However, the expansion of the business is mainly the prime focus for launching an IPO.
Once the company’s IPO is launched, the shares of the company can be freely traded in the market. However, an IPO is a good option but an investor may have to bear a few costs, charges and legal fees, etc. Before opting for an IPO, the investor may go through the prospectus introduced by the company stating the broad reason for coming up with an IPO.
Meaning of NFO:
NFO stands for New Fund Fund Offer it is somewhat similar to an IPO, but NFO is launched by the Asset Management Company. The asset management company popularly known as AMC introduces a new scheme to raise funds.
The AMC uses the funds raised to purchase various securities like bonds and equity. Most of the time, these companies come up with a brand new mutual fund scheme when the NFO is about to launch.
Similarly like an IPO, NFO comes for a stipulated period and investors can pick them for a specific price commonly known as offer price during the launch period.
In the period when the NFO is launched, units are available for purchase at a fixed cost of Rs. 10. Once the launch period is over, the investor can purchase the units of the introduced funds at the price which is going on the market. In the case of NFO, subscribers have to experience maximum gains after the listing process. In more technical terms, after the NFO period is completed the funds will be available at the Net Asset Value of that particular fund.
Difference between an IPO and the NFO:
- IPO means the shares of the private company are offered to the general public and retail investors. NFO means a brand new scheme is launched for a subscription.
- The main purpose to launch an IPO is to utilize the funds for expansion and other business operations. In the case of NFO, the purpose is to use the funds for the purchase of bonds and equities.
- IPO is launched to list a new stock on the stock exchanges whereas the NFO is launched for a new mutual fund scheme
- The valuation of the company and other fundamental analysis is required before investing in an IPO. In the case of NFO, valuation does not play any vital role as the funds collected are disbursed into different units in the market.
- The NFO is good for those investors who have low-risk capacity while IPO is the element of the stock market and comes with a higher risk
The basic requirement to subscribe to an IPO is to have a Demat account.Now, what is a Demat account, the question comes. Demat account keeps the securities of the investor in an electronic format. The investor may pick the stockbrokers by comparing service charges and other costs of different stockbrokers. For trading purposes one may open an online trading account.
IPO and NFO both are good options to yield gain. However, the investor may perform a proper analysis of the company in case of IPO before investing. Both the investments demand patience. If the investor can take higher risk, they may opt for an IPO otherwise for the low-risk capacity investors NFO may serve as the best option.
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