When it comes to increasing your capital over a long period, mutual funds are definitely on the list of the most popular investment sources.
You can take multiple routes in investing in mutual funds, but the well-known ones are the New Fund Offer (NFO) and Systematic Investment Plan (SIP). NFO is when a fund company creates a new mutual fund for the first time, and SIP is the practice of transferring a small amount of money at regular intervals. A SIP calculator Online is another alternative available to you, where the entire process is broken down into just a few clicks. Thus, you get familiar with these concepts to fit you better in your goal and the length of your risk tolerance.
Understanding the Difference Between NFO and SIP
You can get involved in stocks, bonds, and other assets that investment professionals take care of. The following are the top differences:
1. Meaning and Concept: When a fund is initiated for the first time, it is called an NFO. Similar to the company that offers shares to the public for the first time through an IPO (Initial Public Offering). A systematic Investment Plan, or SIP, is a method and mode of regularly investing in mutual funds. A New Fund Offer in the mutual fund sector is the equivalent of an Initial Public Offering (IPO) for companies when they sell shares.
2. Time of Investment: Regarding NFO, you can invest only for the offer period, typically during a few days or weeks. Once the NFO period is over, the fund becomes available for regular trading at the current Net Asset Value (NAV). For an SIP, starting an investment is time in an open-ended mutual fund. A SIP allows you to start, stop, or pause at will. Such flexible options allow a greater level of freedom than NFOS.
3. Cost and NAV: Throughout an NFO, the unit price does not usually fluctuate, and it is set at ₹10. Thus, on the face of it, it may appear cheap, but this is not the cost of the fund’s gain. In the case of SIP, the NAV determines each unit’s price on the investment days. You are thus, in the long run and in the long run, unjustly buying units at different prices.
4. Risk and Track Record: An NFO behaves like that as it does not have any previous background. It is similar to buying an item you are not acquainted with regarding quality or performance. The only difference is that while one gets more risk, in this case, the investment is suitable for experienced people. On the other hand, a SIP (Systematic Investment Plan) is an alternative to an existing mutual fund scheme.
5. Purpose of Investment: An NFO is usually used to launch new ideas or themes. Fund houses use NFOs to introduce something different or unique in the market. If you believe in the new idea or theme, you may invest during the NFO. A SIP is used for long-term financial planning, like saving for retirement, a child’s education or buying a house. It is one of the good ways to grow your money over time.
Final Words
Overall, a systematic investment plan is an effective method of gradually increasing one’s wealth by making investments. Furthermore, SIP minimizes risk and is a perfect choice for long-term investing, particularly with individuals interested in achieving slow but steady profits. The new fund offer (NFO) allows an investor to initially buy the shares of a new fund at a discounted rate.