IPO vs NFO

What is an initial public offering (IPO)?

An initial public offering (IPO) is a procedure by which a firm seeks funding from investors in order to expand its operations. Numerous firms must list on the Indian stock exchange in order to conduct initial public offerings.

Every business, from startups to established firms, has the right to an initial public offering. Typically, one or more investment banks write the whole IPO on behalf of the firm.

The initial public offering has a significant influence on the company's assets. When a firm provides an initial public offering (IPO) to all investors, the company's status switches from private to publicly held on the stock exchange.

Initial public offerings are mostly utilised for three purposes:

• To gather wealth for the business

• To sell the founders', private equity investors', and promoters' shares

• To make future money or existing holdings more easily exchanged by being publicly traded.

Once the shares are issued, they are available for trading on the public market in the same way that normal shares are.

When it comes to price and compliance, IPOs are significantly different from NPOs. The price of an initial public offering is determined by the market capitalisation of the firm.

The price to book and price-to-earnings ratios of the firm are used to judge the attractiveness of the offer and the IPO's listing price.

What is a new fund offering (NFO)?

Numerous investors are confused between  NFO and IPO. However, an NFO is a new fund offering in which an asset management company (AMC) introduces a new strategy for raising cash from the general public.

The AMC invests the funds in a variety of financial instruments, including bonds and stocks. These businesses issue new mutual fund schemes during the new fund offer.

AMCs issue NFOs for a limited period of time, and only investors have the option to purchase them at a specified price during this time period, referred to as the offer price.

During this period, investors acquire significant units of the mutual fund scheme at an offer price in order to subscribe to the RS 10 NFO.

After the tenure has expired, investors may purchase the units on offer. However, it is claimed that subscribers to NFO have reaped significant benefits as a result of the listing. After the NFO period expires, investors will get their funds at the Net Asset Value (NAV).

What Is the Difference Between an Initial Public Offering and a New Fund Offering?

The initial public offering (IPO) is when a company makes its first offer to the public for the subscription of its shares. In comparison, an NFO is the first offer of units in a newly created mutual fund scheme that has been shown to investors.

IPO vs NFO

Pricing

Pricing is a critical criterion since it is determined by the company's perceived value of past and future prospects as well as its fundamentals.

The price at which shares are offered enables investors to identify whether the shares are being offered at a discount or premium to their intrinsic value.

Discounted shares have a higher demand in an initial public offering. With contrast, in NFO, the units offered are at face value. As a result, these units do not reflect the investment's true worth.

Performance

A firm that is contemplating an IPO is already established and generally involved in multiple activities prior to embarking on an IPO.

This enables investors to have a thorough understanding of the company's previous performance, strengths, weaknesses, and market capitalization before to making an investment decision.

Whereas, investors in NFO do not have access to the firm's historical performance or other metrics used to evaluate a company.

They need just to examine the success of the fund manager's and fund house's previous schemes to have a clear grasp of the fund management method and philosophy.

Price of the advertisement

After the initial public offering, the price at which shares are listed and traded on the stock exchange is determined by market participants' assessment of the company's profitability and prospects.

On the other hand, the scheme's Net Asset Value (NFA) in the NFO represents the securities in the portfolio at their most recent market value.

Utilization of Funds

The money obtained in an initial public offering are utilised for a variety of commercial goals, including debt repayment, expansion, and reducing the promoters' ownership in the firm.

A NFO is formed in which fund managers pool their resources to invest in equities and mutual funds. The fundamental purpose of fund raising is to capitalise on a hot investment subject.

Listing

The initial public offering is placed on the stock market above or below the predetermined price band. As a result, if the price increases on the day of the listing, investors might easily earn a profit.

The fund is initially gathered in NFO and then invested based on the Net Asset Value (NAV), which may be less than or more than the face value.

Valuation

The valuation of a business is totally dependent on its performance, value, and other factors. Whereas under an NFO, the entire fund is divided and invested in units.

Risk

The risk associated with an initial public offering is an internal risk that may be exposed to the stock market. Whereas with NPO, the risk appetite is moderate to low, making it a perfect investment for all investors.