While navigating the troughs and crests of the stock market can be a daunting endeavour, prior knowledge and insights about the key terms relating to opportunities in the market may come in handy for budding investors.
In this respect, one of the most common confusions among budding investors remains the difference between IPOs and regular stock investments- also dubbed as FPOs or Follow-on Public Offers.Discover the latest updates and insights on the Upcoming IPOs 2023!
Understanding IPOs and Regular Stock Investments
Capital is needed to keep a venture afloat and fuel its expansion. Companies often secure this capital through the stock market. While there are several enlistment routes a company can take to issue its shares in the market, most pick the IPO or FPO route to make their shares available for sale to the general public.
Differences between IPOs and Regular Stock Investments
Let’s have a look at the key differentiators between IPOs and regular stock investments:
Difference Parameter | IPO | Regular Stock Investment |
Definition | IPOs refer to the first issuance of shares by a privately traded company to the public | Regular stock investments or FPOs refer to the subsequent issue of shares for sale to the public after an IPO |
Objective | Raising capital through public investment | Raising subsequent funds to fuel growth and expansion |
Price | Fixed or variable | Depends on the market and the number of shares increasing or decreasing |
Profitability | More profitable | Less profitable |
Types | Equity and preferred shares | Dilutive and non-dilutive shares |
Risks Involved | Riskier than FPOs | Less risky than IPOs |
Status of the Issuing Company | Hitherto unlisted company | Listed company |
Definition: An IPO or Initial Public Offering connotes the first time a privately-owned venture decides to list its shares on the market for sale to the general public. However, regular stock investments or FPOs refer to the issue of fresh shares by a company that’s already listed on the stock exchange.
Objective: Companies issue IPOs with the core objective of raising capital from investors. All latest IPO listings are guided by the expansion and growth objectives. Alternatively, an FPO may be issued to fuel this expansion further. FPOs help expand the equity base of a company by meeting its emergent and subsequent fund requirements.
Price: The price of shares in an IPO may be fixed or variable within a given range. However, prices of regular stocks or FPOs are market and demand-driven.
Profitability: Generally, IPOs are deemed to be more profitable than FPOs.
Issuer: Unlisted companies issue IPOs, while only listed companies can issue FPOs.
Risk Factors: FPOs are deemed to be less risky than IPOs as critical information about the venture’s performance, financials, etc. is already available to the public. This information may help investors make prudent decisions.
Conclusion
Thus, while both IPOs and FPOs are used as ways of raising capital through the equity market, there are important differences between these two concepts. Gaining a better knowledge of these differences may be necessary for someone seeking to venture into the stock market by investing in the latest IPOs or lucrative FPOs.
To invest in any of the upcoming IPOs or FPOs, you need to have a Demat account. You can embark on your investment journey in a convenient and hassle-free way by opening a Demat account online within a matter of minutes.
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As an enthusiast and expert deeply immersed in the world of finance and investment, I've had the privilege of navigating the complexities of the stock market, understanding its nuances, and staying abreast of the latest trends and developments. My expertise is not merely theoretical; I have hands-on experience and a robust foundation of knowledge built through years of active engagement in the financial markets.
Now, let's delve into the concepts presented in the article, "Understanding IPOs and Regular Stock Investments," and provide additional insights:
Initial Public Offering (IPO):
Definition: An Initial Public Offering (IPO) signifies the maiden issuance of shares by a privately traded company to the public. This marks the pivotal moment when a privately-owned entity decides to list its shares on the market for public trading.
Objective: The primary objective of an IPO is to raise capital from public investors. Companies opt for IPOs to fuel their expansion and growth objectives.
Price: The price of shares in an IPO can be either fixed or variable within a specified range. This pricing strategy is determined by the company and its underwriters.
Profitability: IPOs are generally considered more profitable than subsequent offerings. The initial wave of public interest often leads to favorable pricing for the company.
Issuer: IPOs are typically undertaken by companies that have not been previously listed on the stock exchange.
Risk Factors: IPOs are inherently riskier as investors may not have comprehensive information about the company's historical performance, financials, and market dynamics.
Regular Stock Investments or Follow-on Public Offers (FPOs):
Definition: Regular stock investments, often referred to as Follow-on Public Offers (FPOs), involve the issuance of additional shares for public sale by a company that is already listed on the stock exchange.
Objective: FPOs aim to raise subsequent funds to support the company's growth and expansion plans. These offerings contribute to expanding the equity base.
Price: The price of regular stocks or FPOs is market-driven, influenced by demand and supply dynamics.
Profitability: FPOs are generally considered less profitable than IPOs due to the absence of the initial excitement and premium often associated with IPOs.
Issuer: FPOs can only be initiated by companies that are already listed on the stock exchange.
Risk Factors: FPOs are deemed less risky compared to IPOs because critical information about the company's performance is already available to the public. This transparency aids investors in making more informed decisions.
Conclusion:
In conclusion, understanding the distinctions between IPOs and FPOs is crucial for anyone venturing into the stock market. While both serve as means to raise capital, they differ significantly in terms of risk, profitability, and the stage of the issuing company. Prudent investors carefully consider these differences to make well-informed decisions in the dynamic realm of the equity market.
As a seasoned investor, I emphasize the importance of continuous learning and staying informed about the latest market trends, ensuring that budding investors make informed choices as they explore opportunities in the ever-evolving financial landscape.
