Are you confused about the differences between IPO, FPO and OFS? Our comprehensive guide on IPO vs FPO vs OFS will help you understand the key differences! By the way, all three of them are popular ways of investing in a company’s future growth.
Whether you are a seasoned investor or just starting out, knowing the nuances of IPO, FPO, and OFS can make a noteworthy difference in your investment strategy. This guide will break down the advantages and disadvantages of each method, providing you with the information you need.
Full Forms & Definitions of IPO, FPO and OFS
To digest the information well, one should understand the full forms and definitions of these terms first. This will give you a deeper understanding and help you make better decisions for your investment journey.
IPO (Initial Public Offering)
As the name suggests, an IPO is an event when a company offers its shares to the public for the first time. It usually happens when a private company wants to raise its capital by selling its shares to public investors.
An investment bank helps the company in the process of being listed and selling the shares to the public. Once the shares are listed on the stock exchange, anyone can buy and sell them. The price of shares is determined by market demand and supply, and it can be affected by various other factors.
FPO (Follow-on Public Offering)
An FPO is similar to An IPO, but it happens when an already-listed company wants to raise more capital by selling additional shares to the public. The process of FPO is also similar to IPO, but the shares are easy to sell because the company is already listed on the stock exchange.
In FPO, the price of shares is determined by demand and supply in the market, and it also can be affected by some other factors.
OFS (Offer For Sale)
An OFS is a method through which promoters (individuals or companies who hold over 10% of the total equity share capital of a company or exercise control over the management of the company) of a company sell their shares through the stock exchange.
In an OFS, the company does not raise any capital. The promoter can use the funds for personal or business purposes. It is a fast and efficient way for promoters to sell their shares. It is done when a promoter wants to reduce his stake in the company or exit the business.
Difference Between IPO, FPO and OFS
| Feature | IPO | FPO | OFS |
|---|---|---|---|
| Purpose | To raise capital from the public for the first time. | To raise additional capital from the public | Promoters sell their shares to the public for business or personal purposes |
| Timing | Generally, takes longer than FPO or OFS | Generally, takes shorter than an IPO | It can be completed quickly |
| Price Discovery | Price is discovered through the book-building process | Price is discovered through the book-building process | Price is determined through a bidding process |
| Regulatory Requirements | The company must file a draft prospectus with SEBI | The company must file a draft prospectus with SEBI | The company and promoters must file a notice with SEBI |
| Promoter Participation | Promoters are not allowed to sell their shares | Promoters are allowed to sell their shares up to a certain limit | Promoters can sell their shares without any limit |
Also, Read- Benefits & Risks of Short-Term Fixed Deposits
Know the Similarities
- All three methods involve public participation.
- All three methods involve the issuance of securities by the company.
- All three methods are regulated by the Securities and Exchange Board of India (SEBI).
- All three methods involve a price discovery mechanism to determine the price of the securities being offered.
- All three methods aim to protect the interests of the investors and ensure transparency in the process of raising capital.
Faqs- IPO vs. FPO vs. OFS
Can we sell the shares bought through OFS?
Yes, once the public buys shares through an OFS (Offer for Sale), they can sell the shares in the secondary market. The shares bought through an OFS are listed on the stock exchange and can be traded like any other publicly traded shares.
Is FPO profitable for Investors?
If we compare, FPO is less profitable for investors as the company Offers FPO once it is already established.
Can each listed company Offer “oFS”?
Only the top 200 companies can use the OFS mechanism in terms of market capitalisation.
