Key differences between IPOs and regular stock investments | Motilal Oswal

Differences between IPOs and regular stock investments

While navigating the troughs and crests of the stock market can be a daunting endeavour, prior knowledge and insights about the key terms relating to opportunities in the market may come in handy for budding investors.

In this respect, one of the most common confusions among budding investors remains the difference between IPOs and regular stock investments- also dubbed as FPOs or Follow-on Public Offers.

Understanding IPOs and Regular Stock Investments

Capital is needed to keep a venture afloat and fuel its expansion. Companies often secure this capital through the stock market. While there are several enlistment routes a company can take to issue its shares in the market, most pick the IPO or FPO route to make their shares available for sale to the general public.

Differences between IPOs and Regular Stock Investments

Let’s have a look at the key differentiators between IPOs and regular stock investments:

Difference Parameter

IPO

Regular Stock Investment

Definition

IPOs refer to the first issuance of shares by a privately traded company to the public

Regular stock investments or FPOs refer to the subsequent issue of shares for sale to the public after an IPO

Objective

Raising capital through public investment

Raising subsequent funds to fuel growth and expansion

Price

Fixed or variable

Depends on the market and the number of shares increasing or decreasing

Profitability

More profitable

Less profitable

Types

Equity and preferred shares

Dilutive and non-dilutive shares

Risks Involved

Riskier than FPOs

Less risky than IPOs

Status of the Issuing Company

Hitherto unlisted company

Listed company

Definition: An IPO or Initial Public Offering connotes the first time a privately-owned venture decides to list its shares on the market for sale to the general public. However, regular stock investments or FPOs refer to the issue of fresh shares by a company that’s already listed on the stock exchange.

Objective: Companies issue IPOs with the core objective of raising capital from investors. All latest IPO listings are guided by the expansion and growth objectives. Alternatively, an FPO may be issued to fuel this expansion further. FPOs help expand the equity base of a company by meeting its emergent and subsequent fund requirements.

Price: The price of shares in an IPO may be fixed or variable within a given range. However, prices of regular stocks or FPOs are market and demand-driven.

Profitability: Generally, IPOs are deemed to be more profitable than FPOs.

Issuer: Unlisted companies issue IPOs, while only listed companies can issue FPOs.

Risk Factors: FPOs are deemed to be less risky than IPOs as critical information about the venture’s performance, financials, etc. is already available to the public. This information may help investors make prudent decisions.

Conclusion

Thus, while both IPOs and FPOs are used as ways of raising capital through the equity market, there are important differences between these two concepts. Gaining a better knowledge of these differences may be necessary for someone seeking to venture into the stock market by investing in the latest IPOs or lucrative FPOs.

To invest in any of the upcoming IPOs or FPOs, you need to have a Demat account. You can embark on your investment journey in a convenient and hassle-free way by opening a Demat account online within a matter of minutes.  

Related articles: 5 Tips for Investing In IPOs | What's the big deal about IPOs | Clearing the confusion from IPOs | IPO in India- The future looks bright | Upcoming IPO | LIC IPO

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