New Delhi: Investing in the stock market offers individuals avenues to grow their wealth and participate in the growth of companies. Two primary methods of investing in stocks are Initial Public Offerings (IPOs) and Follow-on Public Offerings (FPOs). While both involve purchasing stocks, they have distinct characteristics and serve different purposes.
What Are IPOs?
An Initial Public Offering (IPO) marks the first time a privately owned company offers its shares to the public. Prior to going public, the company’s shares are typically held by founders, investors, and employees.
Through an IPO, the company sells its shares to investors, thereby raising capital. The funds acquired from the sale are often used to expand operations or pay off debts.
What Are FPOs?
Follow-on Public Offerings (FPOs), on the other hand, involve purchasing stocks that are already publicly traded. These stocks are listed on stock exchanges like the Bombay Stock Exchange, and their prices fluctuate based on demand and supply dynamics.
Differences Between IPO And FPO
One significant difference between IPOs and FPOs lies in their purpose. IPOs are usually issued by privately-owned companies to raise capital for expansion and growth, while FPOs may be issued to further expand the company or bolster its equity base.
Additionally, the pricing mechanisms for IPOs and FPOs differ, with IPO share prices being fixed or set within a specific range, whereas FPO share prices are often demand-driven.
Risk Factors
Investing in stocks always carries risks, but the level of risk varies. FPOs generally entail lower risk since investors have access to crucial information about the company’s performance and finances, enabling them to make more informed decisions.
Both IPOs and FPOs provide opportunities for individuals to invest in the stock market. However, they differ in terms of the issuing process, pricing mechanisms, and associated risk factors.