Is it true that NFOs are appealing since they are always available at Rs.10?
This is a legend. When it comes to mutual funds, the net asset value, or NAV, is simply an indication of the unit value of the fund’s underlying portfolio. When an equity NFO is released when the Nifty is trading at 30 times P/E, the NFO and all existing funds will only acquire stocks at these prices. It makes no difference what an NFO’s issue value is.
When the Nifty is offered at 14 times trailing P/E, buying a mutual fund in the secondary market at a NAV of Rs.145 is a terrific idea. Investing in a mutual fund NFO with a NAV of Rs.10, on the other hand, is a bad choice if the Nifty is trading at a trailing P/E of 29. It makes no difference if the fund’s NAV is Rs.10 or Rs.100. What counts is the underlying portfolio’s quality. Also Invest in NFO Scheme Online.
Is purchasing nfos less expensive than purchasing units from the continuous window?
That is not always the case, and you may end up paying more in an NFO. When a mutual fund issues an NFO, it must invest considerably in marketing, publicity, and distribution. It entails higher costs in the form of advertising, publishing pamphlets, printing of forms and marketing collaterals, road-shows and broker meets across the country etc.
Furthermore, for truly distributing these mutual fund NFOs, most brokers and distributers want upfront commission and trail fees. When all of these factors are considered, the initial cost of an NFO is rather significant. Because all of these expenses are deducted from the NAV, the NFO will necessarily list at a discount. In the case of a continuous window, you have the option of Direct Plans, which are significantly less expensive.
Is there any resemblance between an IPO and an NFO?
Both IPOs and NFOs involve soliciting funds from the general public. NFOs, like IPOs, are only available for subscription for a set length of time. However, IPOs are often closed in three days, whereas NFOs typically remain open for 15-20 days. NFOs, like IPOs, incur expenditures in the form of marketing, administrative, legal, and compliance fees, among other things.
Second, both an IPO and an NFO are typically timed to coincide with periods of rapid growth and solid stock market returns. SEBI regulates both NFOs and IPOs, encompassing all aspects from filing the prospectus to monitoring the actual allocation of money.