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Difference Between IPO And FPO

You probably know about IPOs, but do you know about FPOs? Find out the differences between FPOs and IPOs.<br>Companies issue both IPO & FPO to meet their financial requirements. Find out the difference between IPO and FPO, their types, & benefits of investing in them in detail.

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Difference Between IPO And FPO

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  1. Difference Between IPO And FPO

  2. Table of Content 1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction What is IPO Objectives of IPO Why Investors Invest in IPO? Process of IPO Types of IPO What is FPO? Types of FPO Why do Companies Issue FPO Differences between IPO & FPO 10.

  3. 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

  4. 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 :

  5. 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.

  6. 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.

  7. 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.

  8. 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

  9. 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.

  10. 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.

  11. 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.

  12. 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

  13. 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.

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