As far as the fundamentals of stock investing go, budding traders who wish to invest should learn about the concepts of initial public offer and follow on public offer. These are the two techniques that firms use to raise funds from equity markets. Nonetheless, you should first know what IPO and FPO are, and the difference between them, in order to move ahead with your investments.
IPO or initial public offer (sometimes called ‘offering’) represents the time when a company goes public for the very first time. Saying that a company has gone public translates to the fact that the company has offered its shares to the public. Therefore, the company is all set to get a listing on the stock exchange. There are two stock exchanges in India, the Bombay Stock Exchange or BSE, and the NSE, or National Stock Exchange. The very first time a company gets a listing at the NSE or BSE (or both), offering its shares for public trading, the offering is known as the IPO.
A follow on public offer (FPO), as the name tells you, is an offer that is a follow up to an initial public offer. After the company gets listed on any stock exchange for online market trading purposes, the floating of an additional issue may be undertaken by a company. This is the FPO. So any issue that is floated after the initial one, is an FPO.
Since you know the difference between IPO and FPO now, you may wish to learn about what these two mean for the companies through which they are floated. The moment a company is created, funding is provided to it by other corporations, angel investors, investors, venture capitalists, etc. As the company grows and reaches a larger scale of expansion, funds that were initially used to establish it may run out. The way to get wealth into a company is to launch an IPO. Going public the first time on exchanges fulfils the aim of the company to gain wealth. Nonetheless, while a company may get funds through this, it has to show responsibility and efficiency in its operations so that shareholders are convinced it will be prosperous. Now when you think of an IPO vs FPO, the main difference is the timing of the two issues of shares. One comes after the other. An FPO is offered to raise even more funds for the company in question.
For investors, investing when companies float an IPO is relatively more risky than when companies issue FPOs. This is because a follow-on offering comes later than an initial one, and investors have had enough time to know whether companies they are investing in are relatively profitable.
When a private company goes public by offering its shares for purchase, prices may be high. Therefore, with an IPO, investors may find share prices elevated as compared to an FPO’s. However you choose to invest, you can learn more tools of the trade at premier broker, Motilal Oswal.