Question

Discuss the difference between an IPO and a secondary issue.

Answer 1

Initial Public offering (IPO):

When an unlisted company raises money from the general public for the first time. It is called an intial public offering. Generally, when any entity ( government or corporate) needs money, they issue securities to the public and raise money. Once the shares are listed in the stock exchange, they are available for trading in the secondary market.

Secondary Issue or FPO:

FPO, an acronym for Follow-on public offerings, as the name suggests it is the public issue of shares to investors at large, bya publicly listed company. The process is after an IPO; wherein the company goes further issue of shares to the general public with a view to diversifying their equity base. The shares are offered for sale by the company through an offer document called Prospectus.

Key difference Between IPO and FPO:

1. IPO is a process through which privately owned companies can go public by offering their shares for sale to general public. FPO refers to a process in which publicly owned companies can make further issue of shares to the public through an offer document.

2. IPO are comparartiviely riskier than FPO. It is because in IPO the individiual investor is not known, of what can happen with the company in future, while in case of FPO, the investor is already has an idea about company's investment and growth prospects.