Is it true that NFOs are popular due to their constant availability for Rs. 10?
This is a fallacy. When it comes to mutual funds, the net asset value or NAV merely represents the unit value of the fund’s underlying portfolio. When an equity NFO is issued when the Nifty is trading at 30 times P/E, the NFO and all existing funds will only purchase stocks at these prices. It is irrelevant what the issue value of an NFO is.
Buying a mutual fund on the secondary market for a NAV of Rs.145 while the Nifty is trading at 14 times trailing P/E is a brilliant idea. Conversely, buying in a mutual fund NFO with a NAV of Rs.10 when the Nifty is trading at a trailing P/E of Rs.29 is a bad decision. It is irrelevant whether the NAV of the fund is Rs. 10 or Rs. The quality of the underlying portfolio is what matters.
Is purchasing nfos more affordable than purchasing units from the continuous window?
In fact, you may end up paying more in a non-public offering. When a mutual fund issues an NFO, it must invest considerably in marketing, public relations, 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. Also Invest in NFO Scheme Online.
In addition, the majority of brokers and distributors demand an upfront commission and trailing costs for the distribution of these NFOs. When all of these factors are considered, the initial cost of an NFO is rather significant. Since all of these expenses are deducted from the NAV, the NFO will always trade at a discount. In the case of continuous window, you have the option of significantly less expensive Direct Plans.
Exist any parallels between an IPO and an NFO?
Both IPOs and NFOs involve soliciting funds from the general public. NFOs, like IPOs, remain open for subscription for a predetermined amount of time. However, IPOs are often closed within three days, whereas NFOs typically remain open for 15 to 20 days. NFOs, like IPOs, incur expenses in the form of marketing expenditures, administrative costs, legal and compliance fees, etc.
Second, IPOs and NFOs tend to be dispersed during periods of robust growth and stock market gains. SEBI regulates both NFOs and IPOs, including all aspects from filing the prospectus to monitoring the actual allocation of money.