An IPO (Initial Public Offering) is the first time a company offers shares to the public, raising capital. An FPO (Follow-on Public Offering) occurs when an already listed company offers additional shares to raise more capital, often at a discount.
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What is an IPO?
An IPO (Initial Public Offering) is the process through which a private company offers its shares to the public for the first time. It helps the company raise capital for expansion, debt repayment, or other corporate needs.
During an IPO, the company works with underwriters to determine the share price, quantity, and offering timeline. Once the shares are priced and regulatory approvals are obtained, the shares are listed on a stock exchange, allowing investors to buy them publicly.
FPO Meaning
An FPO (Follow-on Public Offering) is when a company that is already publicly listed offers additional shares to the public to raise more capital. It allows companies to raise funds after their IPO for expansion or debt repayment.
FPOs can either be dilutive, where new shares are issued, or non-dilutive, where existing shares are sold by promoters or investors. This process helps provide liquidity to existing shareholders while also allowing companies to increase their capital base.
IPO Vs FPO
The main difference between an IPO (Initial Public Offering) and an FPO (Follow-on Public Offering) lies in their timing and purpose. An IPO is the first time a company offers shares to the public, while an FPO is an additional offering after a company is already listed.
| Aspect | IPO (Initial Public Offering) | FPO (Follow-on Public Offering) |
| Timing | The first time a company offers shares to the public. | Occurs after a company is already publicly listed. |
| Purpose | To raise capital for expansion, debt reduction, or other corporate needs. | To raise additional funds or provide liquidity to existing shareholders. |
| Shares Issued | New shares are issued by the company, diluting existing shareholders’ stakes. | Can involve new shares or the sale of existing shares by shareholders. |
| Impact on Ownership | Dilutes the ownership of existing shareholders. | No dilution if existing shares are sold; dilution only if new shares are issued. |
Types of IPO
The primary types of IPOs are Fixed Price Offering, Book Building Offering, and Accelerated Book Building. These methods help companies raise capital and cater to various investor preferences and market conditions.
- Fixed Price Offering: The company sets a predetermined price for its shares. Investors purchase shares at this fixed price, regardless of demand or supply, making it simpler and predictable for retail investors.
- Book Building Offering: The company sets a price range, and investors place bids within this range. The final price is decided based on demand, giving the company flexibility and allowing price discovery through market demand.
- Hybrid IPO: A combination of fixed price and book-built methods, where a portion of the shares are issued at a fixed price, and the remaining shares are offered through the book-building process.
Types of FPO
The primary types of FPOs (Follow-on Public Offerings) are Dilution of Equity and Offer for Sale. These methods help companies raise additional capital, either by issuing new shares or selling existing shares, depending on the company’s goals.
- Dilution of Equity: The company issues new shares to raise capital. This increases the number of shares outstanding, diluting existing shareholders’ ownership but providing funds to the company for expansion or debt reduction.
- Offer for Sale (OFS): Existing shareholders, such as promoters or large investors, sell their shares to the public. In this case, the company does not raise any capital, but it provides liquidity for shareholders while maintaining their ownership structure.
Difference Between IPO and FPO – FAQs
An IPO (Initial Public Offering) is when a company offers its shares to the public for the first time. FPO (Follow-on Public Offering) occurs when a company that is already listed issues additional shares to raise capital.
To invest in an IPO, you need to have a Demat account linked to a trading account. You can apply through a stockbroker or online platforms like Alice Blue during the IPO subscription period by filling out the application form.
The three main types of IPOs are:
Fixed Price IPO: Shares are offered at a predetermined price.
Book Built IPO: Shares are offered within a price range, and the final price is determined based on investor demand.
Hybrid IPO: A combination of fixed price and book-building methods, with some shares offered at a fixed price and others through book-building.
Lot size refers to the minimum number of shares an investor must purchase when applying for an IPO. This number is determined by the company and regulatory authorities to ensure the orderly distribution of shares during the offering.
IPOs and FPOs are both regulated by SEBI (Securities and Exchange Board of India). However, FPOs usually have stricter regulations, as they involve already-listed companies, and must adhere to disclosure requirements for investor protection.
IPO pricing is determined through fixed price or book-building methods, with no reference to market prices. FPO pricing typically follows the current market price of the shares, with a discount to attract investors for the additional offering.
India’s largest FPO was by Coal India Ltd. in 2015, where the government sold a 10% stake, raising approximately ₹22,557 crore, making it the largest FPO in Indian history.
Yes, FPO shares can be sold just like shares purchased during an IPO. After the FPO shares are allotted, they are listed on the stock exchange and can be traded by investors.
Buying FPO shares can be beneficial if the company has strong growth prospects. However, investors should evaluate factors such as the company’s financial health, market conditions, and the price offered in the FPO before making a decision.
Any individual or institutional investor with a Demat account can participate in IPOs and FPOs. There are no specific restrictions, although retail investors may face limited allotment due to the high demand for shares during these offerings.
We hope that you are clear about the topic. But there is more to learn and explore when it comes to the stock market, and hence we bring you the important topics and areas that you should know:
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| Analysis | Stock Market Analysis |
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| What is Demat Account |
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Disclaimer: The above article is written for educational purposes, and the companies’ data mentioned in the article may change with respect to time. The securities quoted are exemplary and are not recommendatory.
