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IPOs and NFOs

    Mr. C.S. Sudheer | Saturday, June 21,2008, 07:06 AM
 

With the growth and expansion of financial sector, the financial terms have become very familiar to us. And even we have started using few financial terms in our daily life. But still there are confusions between IPOs and NFOs in few of us. Dear readers, today I would like to discuss on some differences between IPOs and NFOs. And I hope none of my readers will have these confusions in the future.

First, let me give you the definition for both the terms. The term IPO stands for Initial Public Offer and it is in practice in the primary market of shares and stocks. It is the first issue of shares of a company to the public. An Initial Public Offering (IPO) is the first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privately-owned companies looking to become publicly traded.

In an IPO, the issuer may obtain the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market.

IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

The term NFO stands for New Fund Offer and it is in practice in the primary market of Mutual Funds. It is the first issue of units of a mutual fund scheme to investors.

With the fast growing competition and attractive marketing strategies, the NFO and IPO markets have got more popularity. But, mutual fund houses are using unethical marketing practices to promote their fund offers, which misguide many investors to take investment decisions in a hurry. Fund houses are promoting NFOs in the same way in which companies are promoting their IPOs.

My dear readers please note that IPOs gives you the right of ownership of a company, but NFOs gives you the right of ownership of a mutual fund only.

The right of ownership of a company purchased through IPO cannot be cancelled but can be transferred to the other person at the market value. But, the right of ownership of a mutual fund purchased through NFO can be cancelled as and when one wants to do so.

Mr. C.S. Sudheer

Mr C.S.Sudheer is a management graduate. He started his career with ICICI Prudential Life Insurance and later on worked with Howden India. After his brief stint in Howden India, he moved on and incorporated Suvision Holdings Pvt Ltd which is the sole promoter of IndianMoney.com. He aims to build a nation that is financially literate with investment savvy citizens.

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