BAJAJ BROKING

Notification
No new Notification messages
Inventurus Knowledge Solutions IPO is Open!
Apply for the Inventurus Knowledge Solutions IPO through UPI in just minutes.
Open a Free Demat Account
Pay ZERO maintenance charges for the first year, get free stock picks daily, and more.
Trade Now, Pay Later with up to 4x
Never miss a good trading opportunity due to low funds with our MTF feature.
Track Market Movers Instantly
Stay updated with real-time data. Get insights at your fingertips.

Difference Between IPO and FPO

Listen to our Podcast: Grow your wealth and keep it secure.

0:00 / 0:00

Investing in the stock market—popular for its wealth-growing potential—offers various entry routes. In India, companies frequently raise capital through two methods: Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs); these terms may seem similar yet they denote distinct processes, each with unique characteristics and purposes.

What is an IPO? 

An Initial Public Offering (IPO) is the process through which a privately-held company offers its shares to the public for the first time. This allows the company to raise significant capital from public investors. IPOs are typically launched by companies seeking to expand their operations, repay debt, or achieve other strategic goals. The IPO process involves underwriters, regulatory scrutiny, and extensive disclosures to ensure transparency for potential investors. 

What is an FPO? 

A Follow-on Public Offering (FPO) occurs when a company that is already publicly traded issues additional shares to the public. This is usually done to raise more capital for growth, debt repayment, or other financial needs. Unlike IPOs, FPOs involve companies that have already met regulatory requirements and have a track record in the stock market. FPOs can be advantageous for investors as they provide an opportunity to invest in a company with established market performance.

How Important is an IPO for a Company? 

IPOs are crucial for companies as they provide access to substantial capital, which can be used for various purposes such as expanding operations, funding research and development, and reducing debt. By going public, a company increases its visibility and credibility, which can attract more investors and business opportunities. Additionally, IPOs offer liquidity to early investors and employees, allowing them to realize the value of their equity holdings. However, going public also subjects the company to increased regulatory scrutiny and the pressures of meeting quarterly performance expectations.

How Important is an IPO for Investors? 

For investors, IPOs represent an opportunity to invest in a company at an early stage, potentially leading to significant returns if the company performs well. IPOs allow investors to diversify their portfolios and participate in the growth of new and innovative companies. However, investing in IPOs also carries risks, as newly public companies may experience volatility and uncertain performance in the initial trading period. Therefore, thorough research and understanding of the company’s fundamentals are essential for making informed investment decisions. 

IPO vs FPO 

Understanding the difference between IPO and FPO helps investors make informed decisions. Here is a comparative look at both:

Particulars

IPO

FPO

Timing

Equity shares are issued to the public for the first time

Equity shares are issued to the public after the company is already listed on the stock exchanges

Company

Issued by privately-held companies

Issued by publicly traded companies

Information Availability

Information regarding the company is not easily available

Information on the company is publicly available and can be accessed by anyone

Price Determination

Offer price is determined by the company along with the lead managers to the issue based on various factors

Equity shares are typically offered at the current market price or at a slight discount to the current market price

Underwriting

Always involves underwriting by investment banks

Underwriting is generally not involved

Regulatory Requirements

Subject to rigorous regulatory scrutiny and disclosures

Regulatory requirements are less stringent

Potential for Higher Returns

Carries a high potential for capital appreciation

Lower potential for capital appreciation

Risk

Carries a much higher risk

Comparatively lower risk

Difference #1: Purpose

  • IPO: Going Public for the First Time

The primary purpose of an IPO is to allow a private company to become a public company. By issuing an IPO, the company aims to raise capital from the public to fund its growth and expansion plans. It also provides an exit strategy for early investors and allows the founders to monetize their investments.

  • FPO: Raising Additional Capital

In contrast, FPOs are conducted by already publicly-listed companies that seek to raise more capital after their initial listing. These companies may need funds for various reasons such as expansion, debt repayment, or financing new projects. FPOs are essentially a way for existing shareholders to sell more shares to the public, and the company itself may not receive the proceeds.

Difference #2: Regulatory Requirements

  • IPO: Stringent Disclosure and Regulatory Requirements

Companies planning an IPO in India are subjected to rigorous regulatory scrutiny by the Securities and Exchange Board of India (SEBI). They must disclose detailed financial information, business plans, and corporate governance structures to ensure transparency and protect investors’ interests.

  • FPO: Reduced Regulatory Hurdles

FPOs, being offered by already listed companies, generally face fewer regulatory requirements compared to IPOs. While they still need to adhere to disclosure norms, the process is typically smoother and faster, as these companies have already established a track record with the stock market.

Difference #3: Price Determination

  • IPO: Price Discovery through Book Building

In an IPO, the price at which shares are offered to the public is determined through a process called ‘book building.’ Under book building, the company and its underwriters assess investor demand and set a price range. Investors then bid within this range, and the final IPO price is determined based on the demand generated during the bidding process.

  • FPO: Fixed Price Offering

In contrast, FPOs usually have a fixed price at which shares are offered to the public. This price is often set at a discount to the current market price to incentivize investors to participate. Unlike IPOs, there is no book building process involved in FPOs.

Difference #4: Market Impact

  • IPO: Greater Market Impact

The announcement and issuance of an IPO tend to have a more substantial impact on the stock market. It can generate significant media attention and excitement among investors, leading to increased market volatility.

  • FPO: Lesser Market Impact

FPOs, being a secondary offering by an already-listed company, generally have a lesser impact on the broader market. While they can still attract investor interest, the effects on market sentiment are usually milder than those of an IPO.

Difference #5: Use of Proceeds

  • IPO: Capital Infusion for the Company

Funds raised through an IPO go directly to the company, allowing it to finance growth initiatives, repay debts, invest in research and development, or make strategic acquisitions. IPOs are a crucial source of capital for companies in their early growth stages.

  • FPO: Shareholder Liquidity

In an FPO, the funds raised primarily benefit existing shareholders, such as promoters and early investors, who are selling their shares to the public. While the company may indirectly benefit from increased liquidity, the proceeds do not directly contribute to its capital.

Difference #6: Investor Participation

  • IPO: Open to All Investors

IPOs are open to all categories of investors, including retail investors, high-net-worth individuals, and institutional investors. Retail investors can participate with a minimum application amount, making IPOs accessible to a wide range of people.

  • FPO: Generally Open to All, but Priority to Existing Shareholders

FPOs are typically open to all categories of investors, but some FPOs may prioritise existing shareholders by offering them a certain quota or discount on shares. This encourages current investors to participate in the offering.

Difference #7: Timing and Market Conditions

  • IPO: Timing is Critical

The timing of an IPO is crucial, and companies often choose to go public during periods of favourable market conditions. A strong market can lead to a higher IPO price and better reception from investors.

  • FPO: More Flexibility in Timing

FPOs, being conducted by already listed companies, offer more flexibility in timing. These companies can choose to issue FPOs when they believe it is the right time, based on their specific capital needs and market conditions.

Difference #8: Listing Requirements

  • IPO: Initial Listing

Companies opting for an IPO must meet specific listing requirements, such as minimum capital, profitability, and corporate governance standards, to get listed on the stock exchange for the first time.

  • FPO: Already Listed

FPOs are conducted by companies that have already met the listing requirements during their IPO. Therefore, they do not need to fulfil the initial listing criteria again.

Additional Read: How does an IPO work?

Wrapping Up

In summary: IPOs and FPOs constitute two distinct methods that Indian companies utilise to secure capital from the stock market. Both encompass public share issuance; however, they serve different purposes– boasting varying regulatory requirements, pricing mechanisms, and impacts on the industry itself. Grasping these differences proves vital for investors eager to engage in such offerings; this knowledge better equips them to make informed decisions congruent with their investment objectives and risk tolerance.

Share this article: 

Frequently Asked Questions

1. Which is profitable: IPO or FPO?

Answer Field

The profitability of IPOs or FPOs depends on various factors, including market conditions and the company’s performance. IPOs offer potential for early investors to benefit from price appreciation, while FPOs provide existing shareholders with opportunities to sell. There’s no definitive answer; it varies case by case.

2. Is FPO good or bad for the company?

Answer Field

FPOs can be both good and bad for a company. They’re good when the company needs capital for growth. However, excessive FPOs can dilute ownership and affect stock prices negatively, potentially harming shareholders’ interests.

3. Can we buy FPO shares?

Answer Field

Yes, you can buy FPO shares if the company conducts a Follow-on Public Offering. FPO shares are available to the public, including retail investors, just like shares in an IPO.

4. What are the benefits of FPO?

Answer Field

Benefits of FPO include raising funds for expansion, debt repayment, or projects. It also increases liquidity for existing shareholders and can be a way to involve more investors in the company’s growth. However, careful evaluation is crucial before investing in an FPO.

5. What does FPO mean?

Answer Field

FPO stands for Follow-on Public Offering. It refers to the process by which a company that is already publicly traded issues additional shares to the public to raise more capital.

6. What is the main difference between IPO & FPO?

Answer Field

The main difference between IPO and FPO is that an IPO is the first time a privately-held company offers its shares to the public, while an FPO is an additional issuance of shares by a company that is already publicly traded.

7. Is FPO good for shareholders?

Answer Field

An FPO can be good for shareholders as it often indicates that the company is raising funds for expansion or other strategic purposes. However, it can also dilute existing shares, so it's important to consider the specific circumstances of the FPO.

8. Can FPO shares be sold?

Answer Field

Yes, FPO shares can be sold in the secondary market just like any other publicly traded shares. Shareholders can trade them on stock exchanges where the company is listed.

Is FPO risky?

Answer Field

An FPO generally carries less risk compared to an IPO because the company is already publicly traded and has a track record. However, it still involves market risks and should be evaluated carefully.

No Result Found

Read More Blogs

Our Secure Trading Platforms

Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading

Bajaj Broking App Download

8 Lacs+ Users

icon-with-text

4.4+ App Rating

icon-with-text

4 Languages

icon-with-text

₹4700+ Cr MTF Book

icon-with-text