Difference between IPO and FPO

An investor must have a basic knowledge of IPO and FPO before starting his stock market investment journey. IPO (Initial Public Offering) and FPO (Follow on Public Offer) are the 2 concepts through which a company can raise its capital from the equity market. This article will help you know the basic difference between IPO and FPO:   What is an IPO? IPO (Initial Public Offering) is when a private-owned company issues shares to the public for the first time. IPO allows a company to raise capital by offering shares to the public. By selling its shares in an open market, the company can minimize its debt and grow its business successfully in the market. Companies need to get first listed at 2 major stock exchanges in the country. These exchanges are NSE (National Stock Exchange) and BSE (Bombay Stock Exchange). The company gets listed at NSE, BSE, or both for the first time and offers its shares to the public, this offering is known as IPO. Benefits of IPO
  • IPO allows the company to expand its business in the market.
  • IPO helps in expanding the company’s exposure, public image, and prestige which can increase the company’s profit and sales.
  • Through IPO, the company can raise additional funds in the future by secondary offerings.
  What is the IPO procedure?
  1. Selecting an Investment Bank- Bank helps the company in various important details including-
  • Total Capital a company needs to raise
  • Price per share
  • The securities that will be offered
  • Provide financial advice
  1. Create Red Herring Prospectus- The process of creating a Red Herring Prospectus is done with the help of underwriters. This prospectus includes various components such as financial statements, current major shareholders, future plans of the company, expected share price, and other details.
  1. Approval from SEBI- The company presents the prospectus to the Stock Board of Exchange (SEBI). If SEBI approved the prospectus, it gives a date and time for the IPO.
  2. Listing at Stock Exchanges- Now the company needs to get listed at NSE (National Stock Exchange), BSE (Bombay Stock Exchange), or both.
  1. Subscription of shares– Once the company gets the green signal, it can offer the shares to the investors on the date specified in the prospectus. Investors who wish to apply for shares, have to fill out the IPO application form and submit it.
  What is an FPO? FPO (Follow on Public Offer) is a process when a company which already listed on stock exchanges offers shares to the existing shareholders or to new investors. FPO is the further issue of shares while IPO is the first-time issue of shares by any company. Benefits of FPO
  • It allows a company to raise additional fund
  • It helps in improving the company’s growth if the company gets new projects
  • Pay off existing debt
  Types of FPO
  1. Dilutive FPO- This is the process when the company decides to issue additional new shares to the public market. A dilutive FPO reduces the earnings per share (EPS).
  1. Non-Dilutive FPO– In this type of FPO, when the existing private shares are sold publicly. In many cases, these shareholders include members of the Board of Directors, company founders, or existing IPO investors.
  Let’s understand with this simple chart:
  Basis IPO FPO
Full Form Initial Public Offer Follow on Public Offer
Meaning Issuing a share for the first time to the public market Issuing a share so the company can raise additional capital
Risk High Comparatively low
Price Price is either fixed or variable Price is dependent upon the number of shares that can either increase or decrease.

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