NFO vs IPO: When it comes to investing in mutual funds, there is also mention of “NFO” i.e. New Fund Offer. But what is the true meaning of NFO? Should one wait for NFO to invest in a mutual fund? Or does the end of the subscription period of NFO mean missing the investment train? Many times investors also get confused that NFOs are also like Initial Public Offers i.e. IPOs of companies. These are all such questions, the sooner the answers are understood, the better.
What is the meaning of NFO?
NFO means New Fund Offer. When mutual fund companies launch a new fund, the first opportunity to invest in it is through NFO. In this, units of the fund are usually given to investors at the rate of Rs 10 per unit. Later, the prices of these units are determined according to their Net Asset Value (NAV) in the market. Even after the subscription period of NFO is over, investors can invest in that fund, but then they have to buy units of the fund at the then NAV. Actually, mutual fund houses raise funds from investors through NFO and then invest them in the market according to the investment strategy of the scheme.
Difference between IPO and NFO
NFO and IPO may seem similar at first glance, but there are many important differences between the two. In IPO you buy shares of the company and become its shareholder, whereas in NFO you buy mutual fund units, which invest in any asset class like equity, debt or other instruments. In an IPO, it is important to assess the fundamentals and prospects of the company, whereas in an NFO, it is important to understand the theme and investment strategy of the fund. The difference between the two can also be understood with the help of the points given below.
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First let us know what is IPO
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IPO i.e. Initial Public Offer is the first opportunity of a company to be listed in the stock market.
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Public listing of the company’s shares takes place through IPO. Investors who buy shares become shareholders of that company.
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In this, the issue price of shares is decided on the basis of the company’s fundamentals, profits and market valuation.
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The issue price of shares is also linked to the overall current valuation of the company’s business.
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Even if the face value of a share issued in an IPO is Rs 10, its issue price is usually much higher than this.
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After being issued, the price of shares is decided on the basis of the company’s performance, demand-supply and market sentiment.
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Now let’s talk about mutual fund NFO
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In NFO i.e. New Fund Offer, units of mutual funds are issued at a fixed price of Rs 10.
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The price of a mutual fund unit in an NFO has nothing to do with the valuation of the past business of the mutual fund house or the asset management company (AMC) that launched the scheme.
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This price is also not affected by the current value of the fund house’s portfolio or the past performance of the AMC.
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After NFO, the price of units is decided on the basis of its NAV, which is decided on the basis of the latest value of investments made through that fund.
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The objective of NFO is to launch a new fund, through which the money raised is invested in shares of different companies, debt instruments or any other asset class as per the theme and investment strategy of the scheme.
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You get the opportunity to invest even after NFO
It is important to note that NFO is not meant to be the last or most important opportunity to invest in that mutual fund. If you are impressed by the theme or concept of a new fund, you can invest in it even a few days after the subscription period of NFO is over. In open-ended funds, you can buy units at any time on the basis of NAV. Rather, before buying units of an old fund, you have the opportunity to see its past performance. On this basis, you can also get an idea of ​​the approach and expertise of the fund manager.
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Should one invest in NFO?
Investing in NFOs may make sense, but it depends on your investment preferences and the theme of the fund. If the theme of the fund seems attractive and it matches your long term financial planning, then you can invest in it. Before investing in NFO, one should also consider the past performance of the fund house, Asset Management Company (AMC) and fund manager launching it. Do not be hasty in investing in NFO. Take a decision only after doing thorough research and consulting your investment advisor.
(Disclaimer: The purpose of this article is only to provide information, not to give investment advice. The past returns of a mutual fund do not guarantee that it will continue in the future. Decisions related to investment should be taken only after consulting a SEBI approved investment advisor.)
