5paisa Research Team

Last Updated: 17 Nov, 2023 06:37 PM IST


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Investing in the stock market provides various methods to raise funds, and two commonly encountered terms are NFO and IPO. An NFO, or New Fund Offer, is a means of introducing a fresh mutual fund scheme, whereas an IPO, or Initial Public Offering, enables a company to generate capital by releasing shares and obtaining a listing on the stock exchange. Despite both methods involving the generation of funds, there exist notable distinctions between them that all investors must be aware of.

In this article, we will discuss the difference between IPO and NFO and provide you with a detailed comparison of NFO vs IPO.

What Is An IPO?

An IPO refers to the procedure through which a privately owned enterprise transforms into a publicly listed corporation by offering shares of its stock to the general public. While the main goal of an IPO is to generate funds for the company, it may also serve other purposes, such as facilitating the founders, initial investors, and promoters to dispose of their stakes or exit their positions. Additionally, the IPO allows the company to attract new investors and expand its shareholder base.

The IPO process typically involves investment banks who assist in pricing the shares based on various valuation metrics such as the company's market capitalization and financial performance. After the IPO, the shares of the company become publicly available for trading, and their value can fluctuate based on market demand and the company's performance. The IPO price, often referred to as the listing price, determines the initial value of the shares, and investors can buy or sell them on the stock exchange.

What Is An NFO?

NFO stands for New Fund Offering. Unlike an IPO, NFO is a new scheme launched by an Asset Management Company (AMC) to accumulate capital from the public to invest in financial securities such as bonds and equities.

During the NFO period, which is typically limited, investors have the opportunity to purchase mutual fund units at a fixed offer price of RS 10. After the NFO period ends, the units can be purchased at the prevailing Net Asset Value (NAV) of the fund.

Although NFOs are not as well-known as IPOs, they can provide opportunities for investors to access new mutual fund schemes and potentially benefit from their growth. However, like any investment, it is important to research and understand the risks and potential rewards before investing in an NFO.

Key Differences Between NFO & IPO

To better understand the difference between IPO and NFO, take a look at the table below, which outlines the nfo vs ipo comparison.


New Fund Offer (NFO)

Initial Public Offering (IPO)


A new mutual fund program is introduced by an Asset Management Company (AMC) through a New Fund Offer (NFO).

A corporation goes public by issuing shares and getting listed on the stock exchange through an Initial Public Offering (IPO).


NFO is for a new mutual fund program.

IPO is for a new stock.


NFOs are suitable for investors with a low to moderate appetite for risk.

IPOs inherently entail the risk of exposure to the stock market.


In the case of NFOs, valuations hold no significance as the funds are segregated into units and invested in the markets.

The determination of the listing price and the attractiveness of the offer heavily rely on the Price-to-Book (P/BV) and Price-to-Earnings (P/E) ratios.


NFOs start operations after the money has been utilised to purchase market shares.

Following the listing of IPOs on the stock market, they may be priced above or below the initial price range, offering investors significant gains if the prices increase on the listing day.

Succeeding Listing

Following an NFO, the Net Asset Value (NAV) of a mutual fund scheme denotes the present value of its underlying holdings. Nevertheless, the valuation does not encompass the potential growth of the portfolio.

After the IPO, the shares traded on the stock exchange are based on how market participants view the company's future and profitability.

Issued By

NFOs are introduced by Asset Management Companies.

IPOs are introduced by companies.


For NFOs, investors have nothing to compare it against in terms of prior performance. However, they can examine the fund management philosophy and methodology by analyzing the performance of other schemes run by the fund manager and other methods of the fund house.

With IPOs, investors can examine the company's core competencies and historical success.

Fund Utilisation

The funds collected through NFOs go towards the purchase of bonds and stocks by AMCs.

Companies raise money through IPOs to advertise their business, undertake company growth projects, and more.

DEMAT Account Requirement

NFOs do not require a DEMAT account.

IPOs require a DEMAT account.


What Are The Similarities Between NFO And IPO?

Like the difference between IPO and NFO, both NFO and IPO are also similar in some aspects with their fundamentals. One such similarity is that both NFOs and IPOs raise money from the public to fund their operations. NFOs are a type of mutual fund program that aims to accumulate capital from the public through the sale of units, while IPOs allow companies to raise funds by issuing shares to the public.

Another similarity between NFOs and IPOs is that both offerings incur marketing, administrative, legal, and compliance costs. Companies and asset management companies alike have to go through the process of filing their prospectus with the SEBI and obtaining regulatory approval for their offerings. Both types of offerings also tend to see increased demand during periods of high growth and stock market returns.

SEBI plays a critical role in regulating both NFOs and IPOs. The regulatory body oversees the entire process, from filing the prospectus to monitoring the actual allocation of funds. This ensures that both offerings are conducted in a transparent and fair manner.


Both NFO and IPO are similar in terms of their basic concept of raising funds from the public. However, they differ in their nature, risk, and potential returns. It is crucial to do proper research and analyse the risks and rewards, when choosing between NFO vs IPO. A high-risk appetite investor may choose an IPO for potentially significant returns, while an investor with a moderate to low-risk appetite may opt for NFO. Ultimately, investing should be done carefully and gradually, only after considering all the facts and understanding the risks involved. With the right investment approach and due diligence, both NFO and IPO can be viable investment options with the potential for significant returns.

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Frequently Asked Questions

Investing in an NFO has several advantages over an IPO. Firstly, NFOs are generally issued at a lower price of Rs. 10 per unit, whereas IPOs usually have a much higher face value per share. Additionally, NFOs provide investors with a chance to enter at an early stage, thereby giving them an opportunity to benefit from the fund's growth. In contrast, IPOs are issued by companies that are already established and have a track record, so investors have limited room for growth. Moreover, the fund management team of an NFO is usually an expert in their domain and strives to provide superior returns to investors.

NFOs and IPOs differ in their pricing method. NFOs are offered at a fixed price of Rs. 10 per unit during the subscription period, regardless of market conditions. In contrast, the price of IPO shares is set by the company issuing them and is subject to market demand and supply conditions. The company determines the share price based on various factors like market capitalization, earnings potential, and book value.

The process of investing in an NFO differs from an IPO in several ways. To invest in an IPO, an investor needs to have a Demat account, which is not required for investing in an NFO. In an IPO, shares are allotted based on the number of shares applied for, whereas in an NFO, units are allotted based on the amount invested.

Another difference is the duration for which they are open for investment. IPOs are typically open for a shorter period, usually a few days, while NFOs are open for a longer duration, ranging from a few weeks to a few months.

Additionally, NFOs are launched by asset management companies (AMCs), while IPOs are launched by companies seeking to go public. The purpose of an IPO is to raise capital for the company, while the purpose of an NFO is to launch a new mutual fund scheme.

The duration for which NFOs and IPOs remain open for investment differs significantly. As per SEBI regulations, NFOs can remain active for up to 15 days, allowing investors to subscribe to the units within the stipulated time frame. This is a relatively longer period as compared to IPOs. Typically, IPOs are open for subscription for only three days, after which the issue is closed.