Many companies turn to the stock market to raise funds for their various business objectives. Two common methods they use for this purpose are Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs). If you are new to investing, these two terms are a few fundamentals that you should definitely know. This article discusses all aspects of the difference between IPO and FPO.
Understanding Initial Public Offering
An initial public offering (IPO) is the process by which a private company offers its shares to the public for the first time, transforming it into a publicly traded entity.
The IPO process comprises different steps, including appointing underwriters, finalising price bands, and listing on stock exchanges. Two of the most popular stock exchanges that most companies prefer for listing their shares are the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
Types of IPO
When a company decides to go public, it can choose from different methods to offer its shares to investors. The main types of IPO are:
- Fixed Price IPO: The company sets a fixed price for its shares in advance. This price remains unchanged during the entire subscription period.
- Book Building IPO: Instead of a fixed price, a price range is provided. Investors bid within this given range, and the final price is decided based on the demand shown during the bidding process.
- Dutch Auction IPO: Investors submit bids indicating how many shares they wish to purchase and the price they’re prepared to offer. The shares are then distributed to the highest bidders at an even rate.
Understanding Follow-on Public Offerings
A follow-on public offering (FPO) occurs when a company with an active listing on the stock exchange offers new shares to the public in order to raise additional funds. Enterprises might opt for an FPO when they need to fund expansion plans, reduce debt, finance acquisitions, or increase public shareholding.
Types of FPO
FPOs are generally classified into two categories based on how the shares are offered:
- Dilutive FPO: In this type of FPO, the enterprise issues new shares, resulting in an increase in the total number of shares in the market. This may slightly reduce the value of existing shares as the company’s value is now divided among more shares.
- Non-dilutive FPO: In this type of FPO, existing shareholders sell their shares to the public. The company doesn’t issue new shares, so there is no dilution of share value. The company itself doesn’t receive any funds in this type.
IPO vs FPO: Understanding the Key Differences
Here is a comparative analysis of every difference between IPO and FPO to help you understand the two concepts better:
| Feature | Initial Public Offering (IPO) | Follow-on Public Offering (FPO) |
| Definition | First time a company offers shares to the public | Additional share offering by an already listed company |
| Company Status | Private company becoming public | Already a public company |
| Purpose | To get listed on stock exchanges and raise initial capital | To raise additional capital for expansion or debt reduction |
| Risk Level | Generally higher risk due to limited trading history | Relatively lower risk as the company has a market performance history |
| Pricing | Often difficult to determine a fair price | Easier to price based on the current market value |
| Information Available | Limited public information | Extensive public information and trading history |
| Market Perception | Often generates high interest due to novelty | May generate less excitement unless for a highly successful company |
| Regulatory Requirements | More extensive documentation and scrutiny | Relatively simpler process as the company is already compliant |
How To Participate in IPOs and FPOs?
To participate in either an IPO or FPO, you need to open a demat account with a registered broker like Torus Digital. Here is a simple process to follow:
- Make sure you have adequate funds in your account
- Submit your application during the offering period
- Mention the number of shares you want to purchase
- Wait for the allotment process to complete
Remember that both IPOs and FPOs have specific application periods, and you need to apply within that timeframe.
Top Upcoming IPOs to Watch (23rd–27th June 2025)
- Kalpataru Ltd IPO
- HDB Financial Services Ltd IPO
- Globe Civil Projects Ltd IPO
- Ellenbarrie Industrial Gases Ltd IPO
- Suntech Infra Solutions Ltd IPO
Conclusion
Understanding the IPO and FPO difference is crucial for making informed investment choices. While IPOs represent the first step of a company into public ownership, FPOs are additional steps taken by already listed companies to raise more capital or allow existing investors to exit.
Both investment options have their place in a diversified portfolio. As an investor, your decision should align with your financial goals, risk appetite, and market outlook. Remember that thorough research is essential before investing in either an IPO or an FPO.
Ready to start your investment journey? Sign up with Torus Digital today and gain access to a world of investment opportunities, including upcoming IPOs and FPOs!
Frequently Asked Questions (FAQs)
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How do IPOs and FPOs differ?
IPO is the first time a company is offering its shares. In contrast, FPO means the company is already listed and wants to raise additional capital or allow early investors to exit.
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Which is better IPO or FPO?
An IPO is ideal for investors looking to enter early into a potentially high-growth company, though it carries higher risk due to limited performance history. An FPO, on the other hand, offers a safer option as the company is already listed, allowing investors to assess its track record. The better option depends on the investor’s risk appetite and goals.
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Are FPOs Beneficial for Investors?
FPOs can be beneficial for investors as they offer a chance to invest in enterprises with proven track records. However, each offering should be evaluated based on the company’s fundamentals, the purpose of raising funds, and the current market valuation.
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What does FPO mean?
An FPO, or Follow-on Public Offering, means a publicly traded company is adding more shares. It may indicate that a company is expanding, reducing debt, or needs additional capital for other business purposes.
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Should I Invest in New Fund Offerings (NFOs) Instead?
New Fund Offerings (NFOs) are different from IPOs and FPOs as they are related to mutual funds rather than direct company stocks. The decision between stocks and mutual funds depends on your investment strategy, risk tolerance, and financial goals.
