Difference Between IPO And FPO
                     Difference Between IPO And FPO
Table of Content
1. Introduction
2. What is IPO
3. Objectives of IPO
4. Why Investors Invest in IPO?
5. Process of IPO
6. Types of IPO
7. What is FPO?
8. Types of FPO 
9. Why do Companies Issue FPO
10.Differences between IPO & FPO
Introduction
Money is the essence of any business and is necessary at all levels of a business - from the inception of a 
business to its day-to-day operations till its liquidity, money is everywhere.
Companies acquire money mainly from two sources: Debt and Equity. When you raise money in the form of 
debt which is either from banks as loans, debentures, or other financial institutions, then you are liable to 
pay interest on such loans.
Keep  financing cost check  and procure funds on the same time  for the business company issues shares of 
the company in lieu of money which is called Equity Financing.this method help to improve the leverage of 
the company because too much debt hamper the profitability of the company.
Two Method to raise money by Equity Financing:
By Issuing the IPO
By Issuing ht e FPO
What is IPO?
IPO Full Form is Initial Public Offering
Company offer the IPO when Company want to raise Money  from the public for the first time, it 
divide the a significant portion of the of the total value of the company into small denominations 
of equal shares and list those share in the primary market for public to subscribe those shares.
Before issuing the IPO the company have to be first listed in primary market without that ipo 
cannot be issued.
You can also refer to Blog :
IPO Objective
The primary reason the company go for IPO is 
that Equity Financing could be feasible option to 
do so.
IPO is not issued in the stock market because company is not listed yet in the primary market 
and before trading in share market the company has to be first listed in the primary market 
which they do by issuing an IPO.
So, now the company goes public as the number of investors is larger, and then institutional 
investors such as mutual funds, and pension funds can also be tapped as Investors as they 
have a huge amount of money at their disposal. Hence, to avail the benefit of scalability IPO is 
brought by companies.
Also, if smaller companies with smaller capital requirements want to issue an IPO, they can also 
do so given that they fulfill all the legal requirements. 
Process of IPO
1). Selecting an Investment Bank
any company that wants to bring a public issue hires an investment bank called a merchant bank. and 
before choosing any Bank the company do analysis on basic of the past record.
And once the Investment bank is hired by the company then that bank will do all the due diligence process 
and legal processes.
2). Underwriting
There are three methods in the process of underwriting:
1. Firm Commitment: Investment Bank will give commitment to firm that they will raise the certain 
amount from IPO and any kind of gain or loss upon the issuance will be the Investment bank’s gain or 
loss.
2. Best Effort Commitment:  In this method the investment bank will tell you the issue price , 
ascertain the value of firm  will do the pricing of the IPO accordingly, and market the IPO but the 
subscription and response to the IPO will not be their responsibility.
3. Syndicate Underwriting:If the IPO is very big, then it is possible that no one particular investment 
bank will carry out the underwriting process but they will form a syndicate of Investment Banks.
3). Red Herring Prospectus
next step in the process of issuing the IPO is the filling of the Red Herring Prospectus.
Red Herring Prospectus is the document in which all detail of the company is mentioned such as 
promoter and buinessits competitive advantages, capital structure, growth plans, future business 
plans, and other important information related to the business.
4). Compliances and Filings
There are certain guidelines of SEBI, NSE, BSE, or wherever they are listed.There are other acts also 
such as the Securities Contract Act and other legal requirements which are very stringent and 
important to comply with.
5). Pricing
Pricing is the very critical step in IPO process. In this process, the company’s valuation is 
ascertained by the bank and a percentage of the valuation is diluted by the bank in agreement 
with the company.Apart from ascertaining the valuation of the company and the percentage of 
stake that will be diluted the Investment bank will also decide the price of the share issued and 
the lot size of shares that can be subscribed by the investors.
6). Distribution
Distribution is concerned with the selling of the IPO issued by the company. The Investment bank 
ensures it markets the IPO well and sells it to different investors such as mutual funds, pension 
funds, or retail investors to create a demand for that particular IPO.
Know the Distinguish Between Foreign Trade And Foreign Investment
Types of IPO
In pricing, there can be two types of issues:
1. Fixed Price Issue: 
In this kind of public issue the price is fixed and people apply for a lot of shares at the fixed price.
2. Book Building Issue:
This is a widely used type of public issue where the Investment Banks keep a price band of for 
example 60-100 Rs. per share. With this, the bank assesses the market response to the price band.
What is FPO?
FPO’s full form is Follow-on Public Offer (FPO) 
which is a process by which a company, which is already listed on an exchange, issues new shares to the 
public or its existing shareholders.
A company issues FPO in share market for various purposes such as acquiring fresh funds for a new project 
or for expanding the business.
In short, FPO’s meaning can be defined as all the subsequent issues carried out by companies to raise 
money post issuing its IPO will be termed as Follow-on Public Offer. For example, Ruchi Soya came up with 
its FPO on March 24, 2022.
Types of FPO
There are two types of FPOs in the market:
1. Dilutive FPO 
When a company wants to release new shares in the market in order to raise more funds 
from the public without diluting the existing shareholding of the current shareholders or 
promoters.
2. Non-Dilutive FPO - In this type of FPO, the promoters or big shareholders of the company 
let go of their shares in the company. Here, no new shares are issued but the existing 
shares are transferred from one shareholder to the other. Hence, the earnings per share of 
the company remain the same.
Why do Companies Issue FPO?
● To raise additional funds from the market to meet various business needs such as the expansion of 
business or setting up a factory.
● To deleverage the balance sheet of the company i.e. to reduce the percentage of debt of the company 
as debt requires regular interest payments irrespective of the profits the company makes.
Learn how to select stocks that will give you high returns in the stock market with 
Technical Analysis Course
Difference Between IPO & FPO
1. Risk Involved: IPOs are much riskier to invest in comparison to FPO as the companies 
issuing IPO are relatively new and people don’t know much about the company as they 
don’t have much historical information regarding the company to fall back on when 
deciding to invest in an IPO.
Whereas FPOs is comparatively a less risky proposition in comparison to IPO as companies 
issuing FPOs are already present in the market and people have historical performance at 
their disposal to assess whether to invest in the company or not.
2. Cost:  The cost of subscribing to an IPO is higher than FPO as IPOs are priced at a premium 
to the market price whereas FPOs are priced relatively lower than the market price.
3. Price: In IPOs the price of the issue can be either fixed or vary in a certain price range 
whereas in FPOs the price is market-driven and also varies on the basis of the increase or 
decrease in the number of shares.
Thank You
StockDaddy
The Complete Stock Learning Platform 
Learn Stock Market Trading and Investing with StockDaddy
Website: https://www.stockdaddy.in