IPO vs FPO – What Is The Difference Between IPO and FPO?

Editorial Team

Every business requires funds for its operation and growth, and there are various avenues to raise said funds from. One of the most prominent modes of raising capital for companies is a public issue. 

In this article, we shall discuss the two main types of public issue, namely, Initial Public Offering (IPO) and Follow-on Public Offer (FPO), and how the two differ from each other. 

What is an IPO? 

An Initial Public Offering is the first offer of shares to the public by any company. Since an IPO marks the first step for a private company to become a listed company, the process of an IPO is also referred to as going public. 

IPO investment is often marked by rigorous marketing by the issuing company so as to attract investors to subscribe to the issue. There are two main types of IPOs – a fixed price issue (with a predetermined offer price for shares) and a book building issue (with a price band for the shares on offer). 

What is an FPO? 

A Follow-on Public Offer or FPO is the term used to describe all the public issues of a company following its Initial Public Offering. In many ways, an FPO is similar to an IPO, but in some ways, the two differ. There are two main types of FPOs, namely, a dilutive FPO (wherein a company issues fresh shares to the public) and a non-dilutive FPO (wherein a company offers already issued shares held by promoters/ directors). 

Key differences between an IPO and an FPO

While IPO investments carry a sense of buzz, FPOs tend to receive relatively less attention. Since the shares of a company are already available to be purchased from the market, FPOs are not necessarily seen as lucrative investment opportunities. Here are the major differences between an IPO and an FPO. 

Parameter 

Initial Public Offering 

Follow-on Public Offer 

Primary goal 

The main goal of an IPO is to facilitate a private company’s transition to a public company while raising the required capital. 

 

The main goal of an FPO is to raise additional capital for a company and dilute the share capital held by directors and promoters. 

Pricing 

For IPO investments from the public, companies usually set a high offer price or price band. 

For FPOs, companies usually set an offer price that is lower than the prevailing market price of its shares. 

 

Gain potential 

Investors usually stand to gain more from an IPO Investment than an FPO investment since the shares of the issuing company are being listed for the first time. 

With an FPO investment, the chance for gain is relatively lower. However, since the shares are often offered at a discounted price vis-a-vis the market price, investors can make some profit. 

Degree of risk 

An investment in IPOs is riskier and more uncertain than an investment in FPOs, primarily because there is no way to predict how the issuing company’s shares are going to perform in the market. 

FPO investments are relatively less risky than their IPO counterparts since the company is already listed and the past performance of its shares can be assessed. 

To Sum it Up 

Both Initial Public Offering and Follow-on Public Offer are ways for companies to raise capital from the public and/ or make the desired changes in their capital base. Should you wish to invest in an IPO, you can check the BSE IPO list and the NSE IPO list. 

Similarly, you can look out for Follow-on Public Offers by renowned and credible companies. Whether you invest in an IPO or an FPO, it is critical to carry out due diligence before making your investment decision. 

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