Difference between IPO and FPO

Mostly people are confused in understand Difference between IPO and FPO. An FPO is an additional share sale offer, whereas an IPO is the first or first selling of shares of a company to the general public.

The company or issuer whose shares are listed in an IPO is a private corporation. Following the first public offering, the issuer joins the ranks of other publicly listed corporations.

The shares for sale in an FPO, on the other hand, belong to a firm that has previously been listed on the markets. An FPO is an additional share sale offer, whereas an IPO is the first or first selling of a company’s shares to the general public.

Difference between IPO and FPO

IPO and FPO are two of the first key principles that investors must understand before beginning their stock market transactions. A corporation can raise money from equity market investments in two ways: through an initial public offering (IPO) and a follow-on public offering (FPO). A firm can also raise funds through the issuance of corporate bonds. The distinction between IPO and FPO is outlined below in terms of a variety of characteristics.

IPO – Definition

An IPO, or initial public offering, occurs when a firm decides to go public for the first time. In the world of financial markets, going public means that a firm will now offer its shares to the general public while simultaneously preparing to be listed on the majority of the country’s stock exchanges. The National Stock Exchange (NSE) and the Bombay Stock Exchange are the two stock exchanges in India (BSE). An IPO is when a firm is listed for the first time on the NSE, BSE, or both, and offers its shares to the public for trading purposes.

The company files an application with the Securities & Exchange Board of India after deciding the price of each share, the lot size, and the issue size (SEBI). Following SEBI’s permission, the company begins the process of raising funds and eventually listings on stock exchanges such as the NSE or BSE.

IPO – Meaning for Company

A company receives finance from investors, venture capitalists, and a range of corporations, including the government, when it is originally established. When the firm’s funds run out or become insufficient, the company launches an IPO, goes public for the first time, and is listed publicly on exchanges.

This means that when someone decides to invest in a comapany, it will receive financing, but it will also come with a large level of responsibility for running the company efficiently. The purpose is to keep stockholders from incurring any losses. This also means that the corporation and its stockholders will have more liquidity.

IPO – Meaning for Investor

When you acquire a share of a firm, or any number of shares, you are gaining partial ownership of that company. When a firm decides to go public, it offers up a slew of new possibilities, including employee stock ownership plans, or ESOPs. A corporation may offer its employees stock ownership, which comes with a variety of incentives such as profit sharing.

Types of IPOs

There are two types of initial public offerings:

#1 Issue of a Fixed Price

The corporation sets a fixed price for all of its shares and announces it in the offer document as a fixed price issue.

In this sort of IPO, all investors are aware of the price of a certain share set by the firm before it goes public. They pay the complete fixed price when they subscribe to a certain company’s IPO.

#2 The Problem of Book Publishing

Because of the book-building issue, the company does not have a set price, but rather price bands. The price is only found when an investor’s demand has been generated and recorded.

You may also read about: How can I apply for an IPO?

FPO – Definition

A Follow-On Public Offer is abbreviated as FPO. After an IPO, the FPO procedure begins. A FPO is a public offering of shares to the general public by a publicly traded corporation. In FPO, the company seeks to diversify its stock base by issuing additional shares to the general public. The company provides a prospectus.

FPO – Meaning for Company

The purpose of an FPO is to generate fresh capital while also reducing any existing debt that the company must pay off. In contrast to an IPO, an FPO can be done in one of two ways.

#1 Dilutive FPO

A dilutive FPO allows a company to issue an additional number of shares in the market for the public to purchase while maintaining the company’s value. A dilutive FPO lowers the price of the stock while also lowering earnings per share.

#2 Non-dilutive FPO

A non-dilutive FPO is one in which the company’s major shareholders, such as the founders or board of directors, participate. In this sort of FPO, the company’s private shareholders sell their shares on the open market. This method does not raise the number of shares accessible to the corporation, but it does increase the number of public shares available. This strategy, unlike a dilutive IPO, does not modify the number of shares in the company, but it does impact the EPS.

FPO – Meaning for Investor

FPO is cheaper and offers a safer option for the investors.

Types of FPOs

There are two types of FPOs available to investors:

#1 Dilutive FPO

In a dilutive FPO, the company’s share price remains unchanged while the number of outstanding shares grows. Earnings per share and share price are frequently lowered by a dilutive FPO.

#2 Non-Dilutive FPO

In a non-dilutive FPO, existing shareholders sell their stock on the open market. The number of outstanding shares on the market is frequently unaffected.

You may read about: Why do we need a Demat Account?

Difference Between IPO and FPO

1.MeaningAn IPO is a company’s first issuing of sharesAn FPO is a company’s second sale of shares to raise extra money following its IPO
2.PricePrice is fixed or variable price rangePrice is market driven and based on the number of shares increasing or decreasing
3.Share CapitalIncreases as the company provides fresh capital to the publicNumber of shares increases in case of Dilutive FPO and remains same in dilutive FPO
4.ValueExpensiveCheaper than IPO
5.RiskRiskierLess Risk involved
6.Status of the CompanyAn unlisted company issues IPOA listed company issues FPO

In the end, an IPO means that the company’s shares are available to the public. FPO, on the other hand, refers to the first-time issuance of shares listed on the stock exchange to current shareholders or new investors.

These distinctions will help you see the big picture of investing and keep you on course, since they are the first two essential fundamentals that any new stock investor should master.