IPO and FPO are two common fundamental concepts used in the share market. And every investor or trader should be aware of these two commonly used terms before they start investing in the stock market. If a company needs to raise funds from the Indian share market. Then they use Initial public offer and follow (IPO) on public offer (FPO). However, there are other ways of raising funds, also these two terms we will discuss today. And we will also understand some essential differences between IPO and FPO. So, if you want to benefit from learning about this excellent information, stay connected with this entire post.
What is an IPO?
Initial public offering or IPO is the shares issued the first time in the public, or the company goes public for the very first time. The first time going public means that the company is ready to list in the share market and issuing equities to raise the fund initially. India has two major stock exchanges called BSE and NSE or Bombay Stock Exchange and National Stock Exchange. So, when the company is listed in NSE, BSE, or both and issues the shares for the first time, it is called an IPO or initial public offering.
IPO for Company
When a company establishes, it gets funds from several sources, including banks, investors, and even the government. But when it attains a large stage, then these funds seem smaller than the requirements. Hence, the company goes public to raise funds by issuing an IPO in exchange for raising the necessary funds for the company’s development. It also represents that the company now gets funds from the market and feels responsible for using raised money effectively. So that its investor does not meet with any loss and gets superior returns which they expect from the company.
IPO for Investor
Buying an IPO in the stock exchange means that the investor is getting ownership in the company on the ratio of the invested money. The company can also provide SEOP to its employees. The employees willing to get a small profit can be part of the employee stock option plan. And the company offers to provide benefits like profit and dividends on that share to the employee.
Also Read: How to List Company in Stock Market India?
What is FPO?
FPO represents the follow on the public offer of IPO because it was issued after issuing the IPO in the stock exchange. FPO is the additional shares issued in the share market to raise funds after issuing an IPO. In short, FPO is the additionally issued shares. In contrast, the IPO is the initial or the first issue of the company.
FPO for Company
After issuing an IPO, the company can still see the need for additional funds or reduce the debt money. In that case, it issues additional shares in two ways which we have discussed below.
Types of FPO
FPO has two types, such as dilutive FPO and non-dilutive FPO, and both are additional issuance.
Dilutive FPO
Dilutive FPOs are the additional issuance issued in the market at the same value in the required number. And this share automatically negatively impacts the company’s per-share prices and reduces investors’ per-share earnings.
Non-Dilutive FPO
Non-dilutive FPO is the shareholder of the company who holds a large number of shares privately and sells their holdings in the market. These shareholders can be a board of directors and founders of the company. The company does not issue additional fresh shares, and members of the company sell their privately held shares. Hence it does not affect the prices of the share and per share earning. However, the number of shares available for the public for trading increased.
FPO for Investor
FPO is the additional issue, and till this stage, investors know a bit about the company and its performance. Thus, from the investor’s point of view, FPO is a cheaper and safer option for the stock market investment. And that’s why more investors show their investors to purchase these FPOs for investment purposes.
Difference between IPO and FPO
Goal of Issuance
The goal of an IPO for the company is to raise funds by providing ownership of the company’s share to the public. After issuing an IPO and when the company becomes more mature, they issue the additional shares, called FPOs. The goal of FPOs is to meet the need for additional funds by offering ownership of the company’s shares.
Performance
While investing in an IPO, the investor does not have many ideas about the company and its upcoming performance. They need to take help from a red herring prospectus and another source of information. While issuing FPOs, the investors already know about the company. At this level, the company is more likely to sell its FPOs quickly.
Profitability
IPOs are a bit risky but still carry the maximum profitability for the investors. FPOs are also profitable, but here you can get the initial growth. FPOs are less risky than IPOs hence IPOs are more profitable from the point of view of investors.
| Basis | IPO | FPO |
| Meaning | When the company issues its shares in exchange for the first time it is called an IPO. | The company issue additional shares to raise additional dilutive or non-dilutive FPO |
| Price or Cost | The prices of an IPO can be either fixed or variable. | FPO prices depend upon the market trends, and at the time of issuance, the prices of shares can be more or less. |
| Rate of Risk | IPO is very risky as companies issue their shares for the first time. | FPOs are comparatively less risky than IPO because investors already know about the performance of the company. |
| Capital | It increases the capital of the company because it issued for the first time for the public listing. | If the company issues dilutive FPO, then it increases the number of shares. However, if it issues the non-dilutive FPO, it does not impact the number of shares. |
| Goal | Its main goal is to get or raise funds by issuing public offerings to meet the fund requirements. | Its goal is to get additional funds from the public issuance. |
| Profitability | IPO is profitable compared to FPO. The investor has more chances to get a higher profit. | FPO offers low profit compared to IPO. Hence here, investors get low profit on their investment. |
| Types of issuance | The type of IPO can be equity shares or preference shares. | FPO has two types such as dilutive offering and non-dilutive offering. |
Conclusion
IPO and FPO both can be profitable investment options for you as an investor. However, it also depends upon your risk level; if you are ready to take a higher risk, go for an IPO. But if you want a less risky option, then FPO can be a better choice and profitable. So, in this article, we learned the difference between IPO and FPO. We hope you have appreciated this information and share it with your friends as well.