Difference between an IPO and an NFO

What is an IPO?

An initial public offering (IPO) is when a private company becomes public by selling its shares on a stock exchange.

Every company, from new ones to well-known ones, has the right to do an IPO. Most of the time, one or more investment banks write the whole IPO on behalf of the company.

IPO has a significant impact on the company’s holdings. When a firm provides an IPO to all investors, its ownership changes from private to public.

IPOs are majorly used for three purposes:

  • To accumulate capital for the company.
  • To liquidate shares of founders, private equity investors, and promoters.
  • To enable easy trading of future capital or existing holdings by becoming publicly traded.

Shares that have been listed on a stock exchange can be purchased and sold just like any other stock.

When it comes to price and breaking the law, IPO is significantly different from NPO. The price of an IPO is based on the market capitalization of the company.

The price-to-book and price-to-earnings ratios are used to figure out. how attractive the offer is and what the listing price of the IPO will be.

Also Read: – Mutual Fund vs SIP vs FD things you need to know

What is an NFO?

NFOs are asset management companies’ first subscription offers for new schemes. A new fund offer raises money from the public to buy shares, government bonds, etc.

The AMC uses the money it gets to buy different kinds of financial securities, like bonds and stocks. These companies launch new mutual fund schemes during the new fund offering.

To subscribe to the NFO, investors purchase the majority of the mutual fund scheme’s units at an offer price of RS 10 during this period.

After the term is over, investors can buy the units that they offer. But people who sign up for NFO after going public, have made a lot of money. While, once the NFO period is over, investors will get their money based on the fund’s Net Asset Value (NAV).

What’s the difference between a New Fund Offering and an IPO?

IPO is the first time a company makes an offer to the public to buy its shares. With NFO, investors can buy shares in an Investment Fund. They saw it for the first time because it had just come out.

Let’s look at three ways in which NFO and IPO are different:

  • Pricing
    • Pricing is based on the company’s past and future prospects and its fundamentals.
    • The share price determines whether investors are granted a discount or premium to valuations.
    • IPO cheap shares are more popular. NFO units are at face value. These units don’t reflect the investment’s worth.
  • Performance
    • A company with an IPO has already been operating for some time.
    • Before investing, this helps investors understand the company’s prior performance, strengths, weaknesses, and market capitalization.
    • In NFO, investors don’t view a company’s prior performance or other metrics.
    • They could only look at the success of previous schemes managed by the fund manager and fund house offering NFO to determine its approach and philosophy.
  • Listing price
    • After the IPO, the price of shares listed and traded on the stock exchange depends on market perceptions of the company’s profitability and prospects.
    • The NFOs Net Asset Value (NFA) indicates the portfolio’s latest market value.
  • Usage of Funds
    • In an IPO, a company uses the proceeds to repay debts, expand, or reduce promoters’ interest.
    • Fund managers raise NFOs to invest in securities and funds. Fundraising focuses on a trending investment theme.
  • Listing
    • IPOs are listed above or below the price band. Investors might easily make a profit if the price climbs on listing day.
    • In NFO, the initial fund is invested based on the Net Asset Value (NAV), which can be below or over face value.
  • Valuation
    • A company’s valuation depends on performance, value, and more. In NFO, the fund is separated into units.
  • Risk
    • IPOs expose internal risks to the stock market. In NPO, investors’ risk appetite is medium to low.

What is the major difference between IPO and NFO?

The main difference between an IPO and an NFO is that in an IPOs shares are sales at a discount, making them more popular, while in an NFO shares are sales at par. Therefore, these units do not show the actual value of the investment.

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