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Know the Difference between IPO & FPO

IPO and FPO both are public offerings is a way for any company to raise capital for their company, but then how are both different from each other? What are they meant to be for the company and investor, their procedures, and how do investors and traders benefit from them? In this article, we are going to understand and clear our doubts. Let us understand one by one:-

What is an IPO?

IPO stands for Initial Public Offering and it is the first public offering. IPO is the process of getting listed on the stock exchange and publicly traded by offering their shares to the general public for the first time, which is a long and full-proof procedure to ensure that all processes will go seamless and successful. Bankers or underwriters understand the company deeply, evaluate company revenue, assets, capital, debt, etc. and then come up with a price range for shares. Later, investors bid on it to buy the company’s shares. Shares are allocated to bidders in an undersubscribed IPO, whereas an oversubscribed IPO lends a lottery system for this decision-making.

 

Types of IPO

  • Fixed Price Issue – Fixed price issue means the company fixed their share prices and documented them. Thus all investors know the price of a particular share decided by the company before the company goes to the public. Now the public who is going to invest in the IPO of a particular company is mentally prepared with the amount they are going to invest.
  • Book Building Issue – The book building issue means the company does not fix the prices of their shares; instead, they fix the pricing slab. The price is identified after generating and recording the demand of investors.

What does an IPO mean for the company?

IPO means that the company is listed in the stock market, is tradable, has good working capital to scale their business at bigger heights, expands their business operations, and all the information about the company is also public.

What does an IPO mean for the investor?

An IPO is an opportunity for an investor to grow their hard-earned money by investing in a company of higher potential. If an investment is made, the investor becomes the part of the owner of that specific company. The company comes up with many options like ESOP, i.e. employee stock ownership plans, profit sharing, etc. However, the risk is too involved, but if it invested for a long time could give investors significant growth, if all stays good.

What is FPO?

FPO stands for Follow-on Public Offering and, it is also known as the secondary offering. An FPO is made to raise additional capital or to lower the existing debts of the company. In an FPO, the company issues and sells its additional shares to the public.

Types of FPO:-

  • Dilutive offering – In a dilutive FPO, the company issues an additional number of shares to the public to buy. However, the value of the company stays unaffected. This reduces the price of shares and, therefore, automatically reduces earnings per share as well.
  • Non-Dilutive Offering – In a non-dilutive FPO, the big authorities of the company like a board of directors or, say, founders sell their shares privately. However, this technique does not increase the number of shares of the company, whereas it increased the availability of shares for the public.

What does an FPO mean for the company?

Companies issue FPOs to raise their capital and to reduce their debts, which can be done by two methods; i.e. one is dilutive and another one is non-dilutive. In dilutive, additional shares are added and the current shares are split, whereas in non-dilutive, shares that are already issued, like privately held are sold to the public. An at-the-market offering is generally employed by companies as an FPO and, by at-the-market (ATM), companies can sell their shares at the current market prices at any time.

What does an FPO mean for the investor?

The major inbuilt feature of FPO for which an investor can take advantage of FPO is that investors can investigate the company’s growth potential and strategy by seeing past movements, graphs, history, management, the business, and the financials before making any decisions of investment. Though past performance is not the guarantee for the future, it can only give a presumption of the company’s potential and future growth. It is a cheaper and safer option; if any investor seeking for latest FPO then informs your stockbroker or your DP before, he will inform you whenever any FPO going to launch and investors can make a profit from them.

Below are the 10 key differences that are explained with comparisons:-

S.No. Basis for Comparison IPO FPO
1 Meaning In an IPO, the company offers its securities to the public first time. FPO comes after IPO; Companies already listed on the stock exchange can bring up FPOs for subsequent public investment.
2 Full-Form Initial Public Offering Follow-on Public Offering
3 Issuer Unlisted company Listed company
4 Objective Raising capital of the company through the general public for the first time. Raising capital of the company through subsequent public investment.
5 Predictability Less predictable than FPOs More predictable than IPOs
6 Types Equity and Preferred shares Dilutive and Non-Dilutive
7 Price It may vary or be fixed Depends on the market and shares rising or falling
8 Value Costly Mostly affordable because the value of the company is getting further diluted.
9 Risk Higher than FPOs Lower than IPOs
10 Example Paytm IPO, Nykaa IPO Yes Bank FPO, Ruchi Soya FPO

In conclusion, IPO is more profitable and riskier as compared to FPO but if the investor invested under the guidance of a well-reputed stockbroker or DP, who provides all analysis and robust research work before day or time, then a term like risky and difficulty get vanished.

Just contact the trustworthy, veteran, and branded brokers like SMC Global who provide unbiased reports on IPOs and FPOs. They have their own API tools, trading platforms and have been working in trading for over 30 years.

So, Open a Demat account with SMC Global Securities and take part in the list of upcoming IPOs and FPOs!

 

 

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