Another equally important topic as in our previous post, we have understood what is IPO?, well, we will focus on the Types of IPO and Know The Difference Between IPO and FPO?
There are basically 2 types of offering for IPO which is followed everywhere:
- Fixed price offering and
- Book Building offering
well it is up to the company to decide which of the above strategy to implement either any of the one them or both combined:
Fixed price offering:
Fixed price offering is a technic used when the shares are offered to the Angel investor who is ready to invest in a company at a higher rate of risk. This usually happens before the company even enlisting into the stock market, the company enters into an agreement stating that it will be buying a certain number of share to a particular fixed price and then return the share to the company in the mere future at an agreed price so the company provides the shares at the lower price the book value or market value. This method is used to increase the value of the share and to have safety in case the company undergoes a loss on the first day of the IPO. This agreement is usually done with an Angel investor or Merchant banker who happens to their financial advisor many times.
Book Building Offering:
Book building offering is also known as Book value/Market value it is a technic used by all the companies while issuing the IPO as we cannot be purchase shares as much as we like. we have to purchase in the form of a “lot”(lot may consist of 10 or 100 shares based upon the companies decision) and IPO is pre-booking bidding system so that is why the price cannot be assigned, however, it is difficult to determine the value of the share by the public and to avoid the confusion the company releases a “price band” (for Ex:10-20rs).
Difference Between IPO and FPO?
Features |
Initial Public Offering |
Follow on Public Offer |
|
Meaning |
IPO refers to the issue of share in the market for the first time. | FPO refers to the re-issue issue of additional shares into the market by the pre-existing company. |
|
Risk |
The probability of Risk is a higher success cannot be verified | Risk is lower because risk can be identified by the performance of previous track records. |
|
Types |
Equity and Preference | Dilutive and Non-Dilutive |
|
Objective |
Raising capital through public investment | Subsequent public investment |
|
Predictable |
Lower | Higher |
|
Profit |
Higher | Lower |
|
Demand |
Higher in this case | Lower in this condition |
Disclaimer:
Although investing in IPO is good, well that being said it expensive compared to the regular investment, IPO costs up at a total price of 14-15 thousand rupees.
But the chances of success are comparatively higher, as a result, the number of investors is more than usual, the probability of allocation is very low.
moreover, all the activities of IPO and stock capital are overseen by SEBI (Securities and Exchange Board of India).
[Read more: The BEST INVESTMENT PLANS For 2021 In India]
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