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A lot of investors want to earn money from an IPO. However, in a good IPO you get good returns but only limited investors get allotment. A lot of people are left empty handed in such cases. Besides this, even if you get allotment, there is no surety that there will be gain on listing.

If you are unable to get a good IPO and you are not able to make money from IPO then there is no need to worry, there is one way through which you can earn money from the IPO market. That is through IPO focused mutual fund.

IPO-focused funds are of two types. Pre-IPO fund and Post IPO. These come under category of alternative investment fund.

Pre-IPO fund invests in companies that are in the process of getting listed in the share market. Generally, these invest in companies that have already raised capital from private investors and have good business fundamentals.

These funds generally get upto 20-25% returns on investment.

In 2017, IIFL Asset Management launched a Special Opportunities Fund, that invests in Pre-IPO funds.

Its not easy for small investors to invest in non-listed companies, however pre-IPO funds can easily invest in them.

On the other hand, talking about post IPO or IPO-focused fund, then, Edelweiss AMC has launched various series of such funds. Talking about returns, it has given around 14% return in 1 year, $24 return in 3 years and 15% return in 5 years on an annual basis.

So the question is what’s the need of such fund?

Well, the IPO market is pretty active currently. Retail investors lack both time as well as technical proficiency to assess each and every IPO in depth.

In such case, they can invest in IPO funds to try their luck in IPO market.

Such funds maintain their position in the company even afterward if the business model is strong. Shares of such firms continue to give returns even in the long term.

So overall, investors don’t need to worry about when to buy or sell the share.

Lets look at limitations of these funds:

In bull market, IPOs are generally over priced. Still these funds invest in them due to the mandate of the scheme. It is also possible that there will be very few IPOs in a bear market.

Hence it is not a good tactic to focus just on IPOs. Due to this long-term performance of fund is constrained.

If you are unable to pick the correct IPO, then you can invest in such funds however keep in mind that it is a very risky investment.

Money Mantra founder Viral Bhatt says that in IPO focused funds, professional managers choose the IPO of good companies. Generally, fees are higher in these funds. These give good returns, but these are very risky. Hence it is good for investors with a high risk appetite.

So overall we can conclude that, if you are risk loving investor then you can invest in such funds, else maintain your distance. So it is better to invest in a diversified equity fund, for better decisions you can consult some financial advisor.