IPO and FPO both terms are used in the context of stock market, when company is in need of fresh equity capital for expansion of business or for any other reason than it can raise funds either through equity or through debt and when company decides to raise funds through equity route than it can raise capital either through IPO route or FPO route. In order to have a clear understanding of both the terms, one should look at the difference between IPO and FPO –
IPO VS FPO
Full Form
Full form of IPO is Initial Public Offering and full form of FPO is Follow on Public Offer.
Meaning
In case of initial public offering companies issue shares to the public for the first time and company transform from unlisted to listed company after initial public offering while in case of follow on public offer the company is already listed and it is issuing additional shares to the public. In simple words, IPO is first offering by the company to the public while FPO can be second or third offering by the company to the public.
Frequency
In case of an initial public offering, it can be issued by the company only once while follow on public offer can be done many times by the company depending on the requirement of capital by the company for expansion purpose. In simple words IPO is like the birth of human beings just like human beings are born only once in the same way companies are born only once and FPO can be compared to human beings going for hospital for vaccination because just like human beings need vaccination for prevention from diseases in the same way companies to need vaccination in the form of additional capital so as to carry on business in a smooth way.
Listing Price
In case of IPO shareholders can never be sure about the price at which shares will be listed in stock exchanges because initial public offer is like lottery as some shares list at substantial premium to the IPO price while some shares below the issue price of share whereas as far as FPO is concerned the listing price has no major fluctuation.
Risk
As far as initial public offering is concerned they are considered to be more risk as company is unlisted and an investor can see its past record only from prospectus of the company as not much information about the company is available in public domain but as far as FPO is concerned since follow on public offer is made by listed companies only an investor before applying for follow on public offer can get all the information as well as see the past performance of the share price of the company and hence it is less risky as compared to initial public offering.
As one can see from the above that both IPO and FPO are poles apart when it comes to their use, meaning, features, risk as well as return and that is the reason why as an investor you should know the difference between the two and then take the decision whether to invest into the company through initial public offering route or follow on public offer route.