Difference Between IPO and FPO

IPO stands for Initial Public Offering, is a process in which a private company goes public by issuing shares to the general public for the first time.
The company which offers its shares to the public is called an “issuer,” and it does with the guidance of several investment banks. Once the IPO is done, the company’s shares are traded in an open market.
The primary reason for a private company going to the public is to raise money. By selling its shares in an open market, the company can collect and raise funds to grow its business successfully.

There are two different types of IPO:

• Fixed Price Issue

Fixed price issue means the company sets a fixed price of all their shares and mentions it in the offer document.
In this type of IPO, all investors know the price of a particular share decided by the company before the company enters into public. They pay the total fixed price while subscribing to the IPO of a specific company.

• Book Building Issue

The book-building issue means the company does not fix the price, but it has price bands. The price is discovered only after generating and recording the demand of an investor.

FPO stands for Follow on Public Offer, is a process by which the company already listed on the stock exchange issues shares to the existing shareholders of the company or to new investors.
The reason behind the company performing an FPO is to expand its equity base. The company uses FPO only after the company has started the process of an IPO to make their shares available to the public and to raise capital for their business.
In simpler words, FPO is a further issue while IPO is the first issue. The FPO is raised for two intentions:

• To reduce the debt which is existing in a company
• To raise additional capital for a company

There are two types of FPO

• Dilutive FPO

In dilutive FPO, the additional number of shares are issued by the company, but their price value of the company’s share still remains the same. This decreases the share price as well as the reduction in earnings per share.

• Non-Dilutive FPO

Non-Dilutive FPO means the shareholders of the company sell their private shares in the market. Applying this method increases the number of shares available to the investors while it does not increase the number of shares for the company.

There are three major differences that will help you understand the difference between IPO and FPO.

• IPO VS FPO – Objective

The objective of an IPO is to raise capital from investors by selling its shares to the general public to grow and expand its business.
Once the company has done its IPO and achieved the goal of growing their business, they may need additional funds, and that’s where FPOs are issued for a company.
The primary objective of a company to issue FPO is to expand its equity base. However, FPO can also be used to reduce the shareholdings of a promoter.

• IPO VS FPO – Performance

Performance is a major difference between FPO and IPO because it tells how much knowledge or information an investor knows about a company before buying allotted shares.
In IPO, investors have to go through a preliminary document by a company known as the red herring prospectus.
They do not have any major guidance or track record about a company in which they are investing. Thus, they make a perception based on management debt on the books, market interest, and more to subscribe to an IPO.
In FPO, investors know all the essential information about a company along with a track record of what the market interest was like and how was the company’s performance after an IPO.
However, investors get a signal of whether the stocks are worth investing in or not through sales of equity stakes.

• IPO VS FPO – Profitability

IPO can give higher returns for an investor and turn out to be a profitable one than FPOs because investors take part in the starting growth of the company.
FPOs tend to have less risk than IPOs since all the information has been available to the investor about the company.
Another benefit is investors get a chance to analyze the past performance of a company, and they can make an assumption about the company’s growth before investing.
FPOs are less profitable than IPOs because, at this stage, the company is in the stabilization phase.

• Is IPO profitable than FPO?

1. Is IPO profitable than FPO? IPO can give higher returns for an investor and turn out to be a profitable one than FPOs because investors take part in the starting growth of the company.
FPOs tend to have less risk than IPOs since all the information has been available to the investor about the company.

• What does Non-Dilutive FPO mean?

Non-Dilutive FPO means the shareholders of the company sell their private shares in the market. Applying this method increases the number of shares available to the investors while it does not increase the number of shares for the company.

• What is the primary objective of IPO?

The primary objective of an IPO is to raise capital from investors by selling its shares to the general public in order to grow and expand their business.

Final Thoughts

All, in the end, IPO means the share issued by the company are available to the general public. While FPO means the first-time issue of shares listed on the stock exchange to the existing shareholders of the company or to new investors.
These differences will make your vision on investment clear and keep you on the right track, as it is the first two simple fundamentals that every new stock investor must learn in the stock market.