IPOs Or FPOs: Which One To Choose For Investment

There are two primary methods of investing in the stock market: Initial Public Offerings (IPOs) and Follow-on Public Offerings. Both avenues involve purchasing stocks, but they differ in several key aspects.

What are IPOs?

An Initial Public Offering, or IPO, signifies the first instance when a privately owned company offers its shares to the public. Before going public, the company’s shares are typically held by founders, investors and employees. However, with an IPO, the company sells its shares to investors, thereby raising capital. The funds generated from the sale are typically utilised to expand operations or settle debts.

What are FPOs?

Regular stock investments, also known as Follow-on Public Offerings (FPO), involve purchasing stocks that are already publicly traded. These stocks are listed on stock exchanges such as the Bombay Stock Exchange and their prices fluctuate based on demand and supply dynamics.

Differences between IPO and FPO

One of the primary distinctions is the purpose behind issuing IPOs versus FPOs. IPOs are typically issued by privately owned ventures to raise capital for expansion and growth objectives. On the other hand, FPOs may be issued to further expand the company or enhance its equity base.

Additionally, the pricing mechanism differs between IPOs and FPOs. IPO share prices can be fixed or set within a specific range, while the pricing of FPO shares is generally demand-driven.

According to Motilal Oswal, IPOs tend to be more profitable than FPOs. Furthermore, while both unlisted companies and ventures can issue IPOs, only listed companies have the authority to issue FPOs.

Risk Factors

Investing in stocks always entails risks, but the degree varies. FPOs typically carry lower risk as investors have access to vital information about the company’s performance and financials, enabling them to make more informed decisions.

In conclusion, while both IPOs and FPOs offer opportunities for investment in the stock market, they differ in terms of the issuing process, pricing mechanisms and risk factors. Understanding these differences can help investors make informed decisions when navigating the stock market landscape.