Online Share Trading

FPO meaning : What is FPO and their types?

When you read about companies looking for funds to expand or operate, you may have heard the terms IPO or FPO. The name Initial Public Offering (IPO), however, is more common than Follow-on Public Offer (FPO) because there are fewer FPOs.

What's FPO?

An FPO allows investors to purchase shares on the stock exchange. It's a way to raise additional equity capital for the company's operations and expansion plans. FPO stands for any public offering made after an IPO.

What is the difference between an FPO and an IPO?

An IPO is when the company is not listed before it goes public. This makes it a high-risk investment because the potential investor may not be familiar with the company's track record.

FPOs are offered to companies that have been listed. Investors can then monitor market trends and track the potential for investment for a while before making a decision.

Private companies use IPOs to expand their business, but many government agencies use FPOs to pay off their debts, losses, or reduce their stake.

Which types of IPOs or FPOs are there?

There's two types of IPOs.

1. Fixed-Price Offer

Fixed price offerings, as the name implies, offer initial company shares at a fixed cost. The company decides the price and investors are informed of the share prices prior to the company's public offering.

2. Book Building

Bidding is required for book-building offerings. The share price is not fixed. The price per share is determined by a bidding process. After the bidding closes, the price is set. The investor must indicate how many shares they want and how much they are willing to pay.

There's two types of FPOs.

1. Dilutive offering

When a company wants more shares in order to raise more funds, a dilutive FPO will be used. This is done in order to pay off debts. A dilutive FPO means that the company's value does not change, which causes a drop in per-share earnings.

2. Non-dilutive offer

This is when the founders of the company or their large shareholders release some shares to the general public. This money goes to the person who offered the shares, and not to the company. The company's per-share earnings are unaffected.

Different risks are involved in investing in FPOs and IPOs. IPOs can be risky, but they could also bring in greater profits.FPOs are, however, more reliable as the company has been listed. Also, more information about the company's history on the stock exchange is available.

It can be difficult to fully understand the nuances of each investment type, their advantages and disadvantages, as well as its limitations. An investment broker can help you if you are not sure how to invest in an FPO. Contact one today to get started on your financial future.

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