IPO vs NFO | Stock market and mutual funds

IPO vs NFO | Stock market and mutual funds


Friends, let’s talk about investment
There are two famous ways of investing
among investors
First, mutual funds
Second, equities or share market
We go to a mutual fund
or buy shares from the share market.
But we rarely know what their journey is.
For example, if I talk about Reliance’s shares
I wouldn’t know how it first came to the market.
Similarly,
if we talk about mutual funds,
we know what its NAV is
but we don’t know how it started.
Come on, friends
let’s talk about that journey today
when stocks come to the market for the first time
how their price is decided
and what is meant by IPO.
Similarly, when mutual funds are launched for the first time in the market,
what is it called, and how does it work?
I will explain both cases with examples.
Friends, do watch this video till the end
because in the end I will tell you about a mutual fund
whose benchmark is an index.
We spoke about Index mutual funds a few days ago
today we will discuss an index fund too,
IPO
Initial Public Offering.
When a company comes to the market for the first time,
and raises money from the public
then have to launch an IPO.
But which is that stage when a company feels that it should launch an IPO?
Friends,
when companies start, they expand gradually
they need capital for expansion
A company can raise capital from different places
like banks
private investors
At some point, the company might feel that
that it should raise money from public
then it may launch an IPO.
Before IPO is launched,
investment banks would do a valuation of the company.
Assume that an investment bank
did a valuation of a company at 1000 rupees.
The total number of shares was 100.
In that case, the value of one share would be ten rupees.
What happens in this case,
investment bank gives the IPO a range
For example, in this case,
the IPO’s range will be 10-12.
Based on that trading range,
the company tells the investor
that they can bid for the IPO on that price.
Investors then invest money on the IPO.
Recently
IRCTC’s IPO took place.
They kept their range between 315 and 320.
At the time of IPO, a company declares a lot size,
that anyone who wants to bid has to buy a specified minimum number of shares.
In the case of IRCTC,
the lot size was 20 shares
that you must bid for at least 20 shares.
To continue on this,
there was news that
IRCTC’s IPO was subscribed by more than 100%.
How does that happen?
And what does it mean?
Imagine that a company told that they would sell 100 shares.
but the number of applicants were of 200 shares.
So the IPO got oversubscribed by 100%.
Friends,
how does an IPO become oversubscribed?
As you may know,
everything in the share market is based on demand and supply.
Similarly, when IPO is launched, it happens in limited quantity.
When the public thinks that
the value of that particular company is more,
more people come to bid.
In that case, when the market opens,
the share price goes up and investors
gets the benefit of it.
In this case, when investors feel that
the correct value of a company is more the price of the IPO.
In that case, the IPO gets oversubscribed.
Now you must be wondering
when IPO gets oversubscribed,
the number of shares is less than the number of bidders
Who will get the shares and how?
Friends, this is purely a lottery system
it is based on luck who will get IPO and who will not.
I will explain with an example
how beneficial it can be to subscribe to an IPO.
A few years ago
D Mart’s IPO took place
You must have heard of D Mart,
whose actual name is Avenue Supermart
Its shares were also oversubscribed by 100%
Its price was around 300 rupees.
But when it was listed, it was listed at around 600 rupees.
Anyone who got its IPO got more than 100% returns at the beginning itself.
To talk about today,
today these shares trade at 1800 rupees.
So you can imagine if you had subscribed to DMart’s IPO,
and had gotten it by chance,
how much profit you might have had.
Friends,
I told you about IPO,
which helps us understand how a company’s journey starts.
in the public domain.
If I talk about mutual funds,
you may have bought mutual funds,
but you may not know how it came into existence.
Let me tell you how a mutual fund starts.
How money is pooled at first
how it becomes operational publically
Friends, as I told you
as IPO is to share market,
NFO is to mutual funds.
Its full form is New Fund Offer.
Now you must be thinking how NFO works.
Before that let me tell you how mutual fund works
A mutual fund pools money from a lot of investors.
This money is then invested in different securities.
Depending on their investment objective,
it may be debt, equities, government securities
and many others.
Let’s talk about NFO,
when it happens and what its objectives are
As I told you, at the starting phase of a mutual fund,
people pool their money together
according to the objective of the investment fund.
Imagine that this fund says,
that it is about to start,
and that it will be tracking an index
So those investors who wish to invest in that particular fund,
will start pooling their money into this particular fund.
As long as it is getting pooled,
it is called NFO.
Now you must be thinking,
NFO pooled that much money,
and after a point of time started investing.
So after that stage
will the fund stop taking money from investors?
There are two options in this case.
These are open-ended mutual funds
and closed-ended mutual funds.
To talk about closed-ended mutual funds first,
it pools money only during NFO.
As NFO gets over,
it stops accepting money
and only the money collected so far is invested further
for a definite time horizon.
Friends,
to talk about open-ended mutual funds,
they pool money during NFO
and start investing.
After five days, it comes back to the public domain,
an investor can invest money in it again
and also do direct investment.
Friends, a few days ago
we did a video on Index mutual funds.
Where we told you how index mutual funds work.
Let’s talk about
those index funds that are now on the NFO period.
Friends, that fund is called
This fund is now in its NFO period
and will be launched in the coming days.
As I always tell you,
all mutual funds track a benchmark.
This mutual fund tracks a benchmark
which is composed of two indices.
NIFTY 5O and NIFTY Next 50.
Friends,
this fund’s benchmark is composed of tope 100 companies in India.
It comes in the large cap category of mutual funds.
There is a minimum investment amount required to invest in a mutual fund.
In the case of this fund, its minimum subscription amount is 5000 rupees.
Friends,
what are the benefits of investing in index mutual funds?
First, these are passively managed mutual funds,
so the expense ratio is very less.
Second, exit load.
As you may know,
if you invest in a mutual fund
and withdraws money before the set duration,
then an exit load is levied.
For this mutual fund,
the exit load is NIL.
Friends, as I told you,
in an IPO how can we know if it will perform well in the future?
It depends on the company’s valuation.
Similarly, if we talk about mutual funds,
there is a slight disadvantage
that there is no previous track record
to see how they performed earlier.
So in this case, it is important
to see how the fund manager is.
To talk about this mutual fund,
its fund manager is Ashish Naik
who manages about 11 mutual fund schemes.
In addition to this, the total AUM he manages
is more than 4500 crores.
Friends, in the future there will be more and more IPOs and NFOs in the market.
No matter you are an equity investor or a mutual fund investor,
do thorough research before investing in any scheme.
Look at your risk profile
and decide only after where you want to invest.
Before you invest, look at your investment time horizon.
As I always tell you,
if you are investing in equity,
let the investment horizon be at least five years.
If you are thinking about investing somewhere in the future,
then keep these things in mind.
Decide afterwards what you want to do.
Friends, I will end this video with a question.
What do you think, is IPO better or NFO?
Let us know in the comments.
You can have a discussion in the comments,
on what all you should keep in mind before
subscribing to IPO or NFO.
You may also answer others’ questions in the comments.
Friends, if you enjoyed this video,
please like it.
Subscribe to our channel
Because we will make more videos in the upcoming days
on stock market and mutual funds.
Happy Investing!

44 comments

  1. I am always curious About to know the difference between "IPO" and "NFO" . YOU make me understand this term in very simple way.
    LOVE YOU PAJJI 💕 💗💞💖

  2. I invested in tax saver by mistake And I am a student so it is having an lock in period so when will I get the money back can I get it now and how to know my lock in period and if I will get after lock period so do I have to withdraw it or I will get it directly

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