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IPO stands for Initial Public Offerings. IPO is a process through which a privately-owned company is transformed into a public company by offering its equity to the public for the very first time. While it was a private company, it would have a limited number of shareholders, however, by going public it shares its ownership through trading. IPO is the gateway of a company to get its name listed in the stock market.
If you have a trading account or a bank account, you can apply for an IPO through that. In some cases, some of the banks consolidate trading, demat, and bank accounts. Once your Demat account is activated, you need to know about ASBA ( Application Supported by Blocked Amount) as this is compulsory for an IPO.
FPO stands for Follow-on Public Offer. Its process commences after the initial public offer.
The most rudimentary difference between an IPO and an FPO is that IPO is offered for the very first time; on the other hand, FPO is never the first-time offer because IPO is filed when a company wants to be enlisted in the stock exchange; whereas FPO can be filed when the company is already listed in the stock exchange. There is always a chance of risk as in case of IPO you do not know what price it would probably list; or if you would really make money out of an IPO. Since, in the case of FPO, the company’s share is already listed in the stock market and you already have an idea about the listed price, the extent of the underlying risk is lessened.
The fresh issue is the issuance of absolutely new equity shares in a company. Let’s understand this with an example. Let’s assume that a company has 25 shares and a profit amount of Rs 50. So, earning per share is Rs 2. (Rs 50/ 25 shares). In case, the company does not want to raise capital, hence it has issued fresh shares (let’s assume 12 shares at Rs 2 each) thus raising Rs 24. However, due to new shares, the earnings of Rs. 50 will be divided into 50 shares instead of early 25 shares (so, EPS comes down to Rs. 1 instead of earlier Rs. 2/share).