NFO vs IPO: Key Differences You Should Know

When you start looking at investment options, two terms tend to pop up quite often – NFO and IPO. They may seem similar because both involve a ‘first-time’ offer, yet the way they function is not the same. An NFO relates to mutual funds, while an IPO is tied to company shares.

Once you understand the meaning of NFO and how it stands apart from an IPO, it becomes easier to figure out which one suits your approach to investing.

Meaning of NFO

The full form of NFO is New Fund Offer. Fund houses launch them to gather seed money for a new investment plan. This is the stage where early investors get in at the scheme’s face value.

A New Fund Offer is the starting point for a mutual fund scheme. For a short time, investors can buy units at a fixed base value. Think of it like the launch of a new restaurant – the chef (fund manager) is ready to cook, but needs ingredients (capital) before opening the kitchen for regular service.

Once the subscription window shuts, the money raised is invested according to the scheme’s plan. That might mean buying large-cap shares, debt instruments, or a mix. From then on, the price of each unit moves with the Net Asset Value (NAV), which changes daily based on market movements.

While it can be exciting to get into something from the start, remember that you’re entering without past performance data. You’re trusting the track record of the fund house and the fund manager’s strategy.

What is an IPO?

IPO stands for Initial Public Offering. This is when a company that was previously private decides to invite the public to buy its shares. The sale raises money for the business and, in exchange, investors become part-owners.

Once the IPO period ends, the company’s shares are listed on a stock exchange, and their prices move throughout the day based on demand, supply, and overall market sentiment.

NFO vs IPO: At a Glance

Here’s how the NFO vs IPO differences look when you put them side-by-side:

Feature	NFO	IPO
What You Buy	Mutual fund units	Company shares
Ownership Rights	No direct ownership, only fund units	Part ownership of the company
Price at Launch	Fixed face value	Fixed price or price band
After Launch	Units priced at NAV	Shares trade on the stock market
Risk Source	Linked to the fund’s portfolio	Linked to the company’s business performance
Regulated By	SEBI mutual fund rules	SEBI listing regulations

IPO vs NFO: Which is Better?

There’s no one-size-fits-all answer to IPO vs NFO or which is better NFO or IPO. It really depends on your style as an investor:

• If you like owning a piece of a company and don’t mind price swings, IPOs may be appealing.
  
• If you’d rather invest in a professionally managed basket of securities, an NFO could be a better fit.

Things to Check Before Investing

For NFO

• Understand the scheme’s investment focus
• See if the fund house has a solid reputation
• Compare costs with similar active funds

For IPO

• Read about the company’s past performance
• Learn how its industry is doing overall
• Check how the IPO price stacks up against competitors

Drawbacks of NFO

NFOs have their own set of limitations:

• No history to measure past returns
• It can take time for the investment plan to start showing results
• Withdrawals in close-ended funds are locked until maturity

FAQs

How is NFO different from IPO?

An NFO launches a mutual fund scheme and sells fund units. An IPO sells shares of a company, giving investors a direct ownership stake.

What are the drawbacks of NFO?

The main issue is the lack of performance data. Also, in close-ended schemes, you can’t redeem units before maturity unless they’re listed and traded.

Can I withdraw NFO anytime?

With open-ended schemes, yes, after the NFO period ends. With close-ended schemes, you generally have to wait until maturity.

Final Word

Both NFOs and IPOs are ways to start fresh in the investment world, but they serve different purposes. Your choice should depend on your risk appetite, investment horizon, and the type of returns you’re aiming for.

And here’s something worth knowing – if you already have mutual fund investments but need quick access to money, you don’t necessarily have to sell them. Fibe Loan Against Mutual Fund lets you borrow up to 80% of your fund value for six months, with interest rates starting from 11% per annum. It’s a way to unlock funds without disturbing your investment journey.