What is an IPO?
An Initial Public Offering (IPO) is when a privately held company raises capital by offering its shares to the public for the first time. Once listed, the company’s shares become available for trading on stock exchanges like NSE or BSE. IPOs allow businesses to raise funds for expansion, repay debt, or invest in new projects.
For example, recent SME IPOs like Dev Accelerator IPO and Karbonsteel Engineering IPO have generated strong investor interest, showcasing the popularity of IPOs in India.
Key Features of an IPO:
- Company issues shares for the first time.
- Investors can subscribe during the open bidding period.
- Shares get listed on exchanges post allotment.
- Pricing is either fixed or book-built (price band system).
What is an FPO?
A Follow-on Public Offering (FPO) happens when a company that is already listed on the stock exchange issues additional shares to the public. This helps raise extra capital for growth, acquisitions, or debt repayment.
Unlike IPOs, where investors evaluate a company with limited public data, FPOs allow investors to review the company’s performance track record before investing. This makes FPOs relatively less risky.
Key Features of an FPO:
- Issued by companies already listed in the market.
- Can dilute promoter holding or bring in fresh funds.
- Generally considered less risky than IPOs as past financial performance is available.
IPO vs FPO – The Key Differences
| Basis | IPO | FPO |
|---|---|---|
| Meaning | First-time public issue of shares | Additional issue by already listed company |
| Risk Level | Higher – company has no trading history | Lower – performance track record is available |
| Objective | Raise funds for expansion, growth, debt repayment | Raise more capital, reduce debt, or fund acquisitions |
| Investor Base | New investors entering company ownership | Existing and new investors can participate |
Why Do Companies Go for IPO or FPO?
- Fundraising: For expansion, R&D, or acquisitions.
- Brand Visibility: Being listed increases credibility.
- Liquidity: Provides exit opportunities for early investors and promoters.
We’ve seen similar objectives in recent SME offerings like Current Infraprojects IPO and Anondita Medicare IPO, where funds are being raised for expansion and working capital needs.
Risks Involved
- IPO: Pricing risk, market volatility, unproven track record.
- FPO: Dilution of shareholding, possible pressure on share price.
Investor Takeaway
Both IPOs and FPOs offer investors opportunities to invest in companies at different stages of growth. IPOs allow entry at an early stage but come with higher risks. FPOs are safer since companies already have public financial history. A balanced approach with proper research is key.
For deeper insights, explore our coverage of recent IPOs like Galaxy Medicare IPO and Dev Accelerator IPO.
Disclaimer: This article is for educational purposes only and not financial advice. Please consult a registered financial advisor before investing.
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