Difference Between IPO and FPO

Money is the essence of any business and is necessary at all levels of a business. Companies acquire money mainly from two sources: Equity and Debt. In Equity, there are two ways to generate money IPO and FPO. When you raise money in the form of Debt which is either from banks as loans, debentures, or other financial institutions, then you are liable to pay interest on such loans.

 

There are two methods of raising money by equity financing:

1. By Issuing IPO (Initial Public Offer)
2. By Issuing FPO (Follow on Public Offer)

 

 

1). What is IPO?

IPO’s full form is Initial Public Offer Whenever a company wants to raise money from the public for the first time, it divides a significant portion of the total value of the company into small denominations of equal shares and lists those shares in the primary market for the public to subscribe to those shares.

IPO is not issued in share market but in the primary market as it is not listed yet and the company is issuing its shares for the first time. Once the shares of a company are listed in the primary market and the IPO is subscribed initially, they can then be traded in the secondary market.

For IPO Updates you can refer to the StockDaddy IPO page.

 

 

2). What is FPO?

FPO’s full form is Follow-on Public Offer (FPO) which is a process by which a company, which is already listed on an exchange, issues new shares to the public or its existing shareholders. A company issues FPO in share market for various purposes such as acquiring fresh funds for a new project or for expanding the business.

In short, FPO’s meaning can be defined as all the subsequent issues carried out by companies to raise money post issuing its IPO will be termed as Follow-on Public Offer. For example, Ruchi Soya came up with its FPO on March 24, 2022.

 

 

Differences between IPO & FPO

1. Meaning: IPO is a type of public offering where shares of stock in a company are sold to the general public for the first time whereas FPO is issued by the companies once they are listed on the stock exchange for the first time.
2. Status: IPO is issued by those companies which are privately owned by individuals or groups and intend to go public by listing on the primary market whereas FPO is issued by public companies which are already listed in the market.
3. Types: There are two types of IPO based on their pricing structure: Fixed Price Issues and Book Building Issues.

 

FPOs are also of two types based on the change they bring to the earnings per share of the company: Dilutive FPO and Non-Dilutive FPO.

1. Risk Involved: IPOs are much riskier to invest in comparison to FPO as the companies issuing IPO are relatively new and people don’t know much about the company as they don’t have much historical information regarding the company to fall back on when deciding to invest in an IPO.
2. Whereas FPOs is comparatively a less risky proposition in comparison to IPO as companies issuing FPOs are already present in the market and people have historical performance at their disposal to assess whether to invest in the company or not.
3. Cost:  The cost of subscribing to an IPO is higher than FPO as IPOs are priced at a premium to the market price whereas FPOs are priced relatively lower than the market price.
4. Price: In IPOs the price of the issue can be either fixed or vary in a certain price range whereas in FPOs the price is market-driven and also varies on the basis of the increase or decrease in the number of shares.

 

	IPO	FPO
Meaning	IPO is the process of listing shares in the capital market for the first time.	FPO is the process of issuing shares by a company after the issuance of an IPO.
Types	There are two types of IPO 1. Fixed Price Issue 2. Book Building Issue	FPOs are also of two types: 1. Dilutive FPO 2. Non-Dilutive FPO
Risk Involved	Investing in IPO can be risky.	Investing in FPO is comparatively less risky than IPO.
Cost	The cost of subscribing to an IPO is higher.	The cost of subscribing to an FPO is less risk y.
Price	Price of an IPO is either fixed or varied within a fixed range	The price of an FPO is market driven and may vary.

 

 

Why Investors Invest in IPO?

When an IPO is subscribed by an investor, they become a shareholder in that company. If investors believe that it is a company with strong fundamentals and future growth prospects, then they invest in that company so that if in the future that company turns out to be a big player in its industry, then the investors also benefit from the rise of the company.

 

From an investor’s perspective investing in an IPO is mostly about believing in the growth story of the company based on its reputation and its red herring prospectus and investing early in it to benefit heavily from its growth in the future.

 

An IPO’s return on investment depends on various factors such as the brand value of the company, price of the IPO, past performance, and future projections about the company. To get all the latest information about the Current and upcoming IPO at the Stock Exchange you can always refer to the IPO dashboard at various sites.

 

With the IPO dashboard, you can track any IPO which is listed on Stock Exchange or find out information about upcoming IPOs.

 

Why do Companies Issue FPO?

FPO is listed by companies that are already listed in the market. The companies issue FPO for various reasons, some of which are:

 

• To raise additional funds from the market to meet various business needs such as the expansion of business or setting up a factory.
• To deleverage the balance sheet of the company i.e. to reduce the percentage of debt of the company as debt requires regular interest payments irrespective of the profits the company makes.