What is Initial Public Offering (IPO)?

An Initial Public Offering (IPO) is the process through which a private firm first sells its shares to the public to raise capital. Companies typically choose to go public when they require large amounts of money for expansions, debt settlement, or other significant projects.

The main difference between IPO and FPO is that an IPO raises initial capital through listing, whereas an FPO raises additional capital after the IPO. The main difference between OFS and IPO, on the other hand, is that OFS only allows existing shareholders to sell their shares.

 

Key Features of an IPO:

• First-Time Offering: It is the first official trade of shares/stocks by a company.
• Raising Capital: Companies seek to raise capital by selling a stake in their ownership.
• Pricing Mechanism: The share price is determined via the fixed price book-building method.
• Regulatory Compliance: Companies must follow the stringent regulations set forth by SEBI.

 

What is Follow-on Public Offering (FPO)?

A follow-on Public Offering (FPO) occurs when a company already listed on any of the stock exchange offers new shares to the public. These offerings often raise capital for expansion, lower debt, or fund new projects.

As stated before, the fundamental difference between FPO and IPO is that IPO is a company's first sale of shares to the public, whereas FPO raises funds after the company has already gone public.

 

Key Features of an FPO:

• For Listed Companies: Only companies already listed can issue an FPO.
• Dilution of shares: Dilution can reduce the ownership position of the existing shareholders because more shares come into the market.
• Purpose: Often aimed at funding specific projects or restructuring finances.

 

What is Offer for Sale (OFS)?

An Offer for Sale (OFS) is a process in which the existing shareholders sell their shares to the public. In an OFS, share ownership is transferred from one shareholder to another; hence, no new shares are issued. This is a way for promoters to reduce their holding in a company without violating regulatory norms.

 

Difference between IPO, FPO, and OFS

Here are IPO, FPO and OFS compared to each other in the stock market:

Feature	IPO	FPO	OFS
Company Status	Transitioning from private to public	Already public	Already public
Shares Issued	New shares	New or existing shares	Existing shares
Purpose	Capital raising	Additional funding	Stake reduction
Process	Lengthy and rigorous	Moderately complex	Quick and straightforward

 

Conclusion

While IPOs, FPOs, and OFS serve different purposes, they are all very important instruments for companies to manage their finances. It also allows investors and traders access to more shares. Knowing these differences can help investors make better investment decisions.