These are the initial several basics that ambitious equity investors should understand before investing in the share market. The initial public offering (IPO) and follow-on public offering (FPO) are the two most popular approaches for a business to raise funds from the stock market. Corporate bonds are another way for businesses to collect funds. Let’s understand the difference between IPO and FPO in detail.
Table of Contents
What is an Initial Public Offering (IPO)?
Initial Public Offering’s short form is IPO. An initial public offering, or IPO, is when a corporation goes public for the first time. The initial public offering (IPO) is when a corporation decides to list on a stock exchange and become publicly traded.
The Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) are our two major stock exchanges (NSE) in India. It is the company’s primary means of raising funds from the general public to fund its ventures, in exchange for which the firm issues stocks to the buyers.
Why does a company come with an IPO?
When a business is established, it receives support from a variety of sources, including companies, investors, angel investors, venture capitalists, and even the government. When a business ‘s assets run out or are inadequate, it introduces an IPO, or initial public offering.
It indicates that if you invest in a business, it will receive capital, but it also means that the company will be responsible for operating the firm efficiently so that its shareholders do not lose money. It also ensures that the organization would have more liquidity.
Investors Benefits from IPO
Acquiring a stock or a number of stocks in a firm entitles you to a portion of the company ‘s assets. When a firm goes public it opens up new opportunities including employee equity ownership schemes, or ESOPs.
Employees may be offered equity ownership, which comes with incentives such as profit sharing.
What is FPO?
FPO full form is Follow-On Public Offer. A company can come up with the FPO after IPO. A FPO is a public offering of stock to the general public by a publicly traded firm. In FPO, the firm seeks to expand its equity base by issuing additional securities to the general public.
The corporation provides a proposal. In other terms, an FPO is a secondary offering, while an IPO is a primary offering.
Why does a company come with FPO?
An FPO is used to collect new funds or to pay off current debt. There are two ways to offer a FPO
Types of FPO
There are two categories of FPO:
- Dilutive Offering – The corporation issues an extra quantity of stocks in the market for the public to buy in dilutive FPO, but the firm ‘s value stays unchanged This lowers the stock price and, as a result, decreases the return on equity.
- Non-Dilutive offering – When the firm’s major shareholders, such as the board of directors or the owners, sell their personally owned stock in the market, it is known as a non-dilutive IPO. This strategy does not raise the quantity of stocks issued by the company; rather, it raises the quantity of stocks accessible to the general public Unlike dilutive FPO, this approach has no impact on the company’s EPS because it does not change the amount of stocks outstanding.
Investors Benefits from FPO
When deciding among an IPO and an FPO, the FPO is the less expensive and better choice. When it comes to an FPO, you actually know a lot regarding the business, the industry, the management plan, the cash flows, and everything else.
Main Reason for IPO and FPO
Fund flow is needed for a business to operate and expand. Also well-established businesses, not just start-ups, need funds to maintain their operations and extend their operations.
Since it is sometimes unlikely for the company ‘s owner to have a constant flow of money, issuing shares to the general public is the most popular method for a firm to collect cash.
However, in both the cases the company needs to take approval from Securities and Exchange Board of India(SEBI). Now let’s discuss the main topic: Difference between IPO and FPO.
Difference Between IPO and FPO (IPO Vs FPO)
| Base | Initial public offering(IPO) | Follow on Public Offer(FPO) |
|---|---|---|
| Definition | An initial public offering (IPO) is a firm’s first offering of shares to the public for subscription. | Issuance of stock by a corporation to collect additional funds for Second time after its initial public offering (IPO). |
| Status of firm | Unlisted Firm | Listed firm |
| Raising funds | First time from public | Second time after its initial public offering |
| Risk | Higher | Relatively lower |
| Objective | The main objective is raising capital through public investment | The main objective is subsequent public investment |
| Price Predictability | Mostly surprising | Mostly unsurprising |
| Rewards | Better than FPO | less than IPO |
| categories | Equity shares and Preferred shares | Dilutive and Non-Dilutive offering |
| Pricing of stock | Mostly Expensive | Cheaper in mostly cases |
| Price of Stock | fixed price or fixed Price ranges | The price is determined by the market and is based on the number of stocks rising or declining. |
| No. of Stocks |
It Increases as a consequence of the firm issuing new capital to the public in consideration for its IPO. | In a dilutive FPO, the quantity of stocks rises, but in a non-dilutive FPO, it stays unchanged |
Conclusion
The Difference between IPO and FPO is basically the difference of risk and reward for an investor. If you like to take more risk than IPO is the best choice as it offers better returns if everything goes well. If you don’t like to take risks then FPO is the best choice because you know almost everything about a company as it’s already trading.
This is all from our side regarding Difference Between IPO and FPO, Let us know your views in the comment section.
Other Interesting blogs related to Difference Between IPO and FPO
Difference Between Equity Shares and Preference Shares
Difference Between Bulk Deal and Block Deal
Difference between Nifty and Sensex
Difference Between Shares and Debentures
FAQ About FPO vs IPO
IPO and FPO full form?
IPO - Initial Public Offering FPO - Follow Up Public Offering
IPO meaning?
IPO meaning is Initial Public Offering.
Rules of ipo and fpo?
They need to follow the guidelines of Securities and Exchange Board of India.
What is fpo?
FPO meaning Follow Up Public Offering by a company after IPO.
IPO full form?
IPO means Initial Public offering.
