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In the world of stock markets, you often come across terms like IPO and FPO. Both are ways for companies to raise funds from the public, but they serve different purposes and come at different stages in a company’s growth. Understanding the difference between an Initial Public Offering (IPO) and a Follow-on Public Offering (FPO) can help investors make better decisions when participating in the stock market, especially in India.
What is an IPO?
An IPO (Initial Public Offering) is when a private company offers its shares to the public for the first time, transitioning into a publicly listed company. It’s a major event for the company, as it opens the doors to a larger pool of investors. For retail investors, participating in an IPO can offer significant IPO benefits, such as early access to shares before they are listed on the stock exchange.
IPO Benefits for Investors
- Early Entry: Investing in an IPO allows you to become a shareholder in a company at its initial stage of being listed. If the company performs well post-listing, your shares can be appreciated significantly.
- Price Gains: Many companies experience a surge in share prices after they get listed, offering profit opportunities.
- Diverse Opportunities: IPOs provide a chance to invest in a range of sectors, from tech to healthcare to manufacturing.
With the rise of digital platforms, applying for an IPO has become much simpler through an online trading app or by using a trading account. These platforms allow you to apply for IPOs, track the progress, and manage your investments all from the convenience of your smartphone.
What is an FPO?
An FPO (Follow-on Public Offering) occurs when a company that is already publicly listed issues additional shares to raise more capital. Unlike an IPO, where the company is going public for the first time, an FPO is aimed at raising further funds after the company has already completed its initial public offering. FPOs are often used to reduce debt, fund expansion projects, or improve financial health.
Key Differences Between IPO and FPO
- Stage of the Company:
- IPO: The company is going public for the first time, transitioning from a private to a publicly traded entity.
- FPO: The company is already listed on the stock exchange and is issuing additional shares to raise more capital.
- Risk Level:
- IPO: Investing in an IPO carries a higher risk since the company’s performance is uncertain, and it’s new to the public market.
- FPO: An FPO generally carries lower risk compared to an IPO because the company has already established a track record in the stock market.
- Pricing Mechanism:
- IPO: In an IPO, the price of shares is determined through a process called “book building” or fixed pricing, based on the company’s financials and market sentiment.
- FPO: In an FPO, the price is often lower than the market price to attract more investors, especially since the company is already listed.
- Investor Participation:
- IPO: Both retail and institutional investors are eager to participate in IPOs because they offer the chance to invest in a company at its earliest stage.
- FPO: FPOs tend to attract more seasoned investors, as the company already has a stock market history, making it easier to assess its performance.
- Objective:
- IPO: The main objective of an IPO is to raise funds to fuel the company’s growth and expansion.
- FPO: The company uses FPOs to raise additional capital to meet ongoing business requirements, pay off debt, or fund new projects.
How to Participate in IPOs and FPOs?
Participating in both IPOs and FPOs has become easy with the help of a trading account and online trading app. These digital platforms provide a seamless experience for applying, monitoring, and investing in stock market offerings. With just a few clicks, you can apply for an IPO or FPO, track the progress, and manage your portfolio in real-time.
Conclusion
While both IPO and FPO are ways for companies to raise capital, they serve different purposes. IPOs are about bringing a company to the public for the first time, offering investors the chance to reap the IPO benefits of early participation. FPOs, on the other hand, allow existing companies to raise more funds and give investors a lower-risk opportunity to increase their holdings.
Whether you’re looking to invest in an IPO or FPO, having a trading account and an online trading app will make the process efficient and straightforward, helping you stay ahead in the ever-evolving stock market.
