IPO Basics/Difference Between IPO, FPO, OFS

Difference Between IPO, FPO, OFS

Introduction

In the Indian stock market, companies and shareholders can raise money through multiple mechanisms such as IPO (Initial Public Offering), FPO (Follow-on Public Offer), and OFS (Offer for Sale). This document explains the differences between these three in a clear and structured manner.

What Is an IPO (Initial Public Offering)?

IPO is the process through which a private company offers its shares to the public for the first time and gets listed on a stock exchange such as NSE or BSE.

  • Marks the first public entry of a company into the stock market
  • Creates a public market for the company’s shares
  • Used primarily to raise fresh capital or partially exit early investors
  • Applicable only to unlisted companies

What Is an FPO (Follow-on Public Offer)?

FPO is a public issue of shares by a company that is already listed on the stock exchange. It allows the company to raise additional capital after its IPO.

  • Available only for already listed companies
  • Can involve fresh issue, offer for sale, or both
  • Often used for expansion, debt reduction, or capital restructuring
  • Share price is usually close to the prevailing market price

What Is an OFS (Offer for Sale)?

OFS is a mechanism through which existing shareholders sell their shares directly on the stock exchange. It is commonly used by promoters or large investors to reduce their stake.

  • Conducted through a stock exchange bidding window
  • No new shares are issued by the company
  • Used primarily for promoter stake dilution or regulatory compliance
  • Typically completed within one or two trading days

Key Differences Between IPO, FPO, and OFS

  • Company Status: IPO is for unlisted companies, while FPO and OFS are for listed companies.
  • Purpose: IPO and FPO may raise fresh capital, whereas OFS only enables sale of existing shares.
  • Share Creation: IPO and FPO can create new shares, but OFS does not.
  • Timeline: IPOs and FPOs follow a fixed issue schedule, while OFS happens quickly via exchange trading.

Investor Perspective

From an investor’s point of view, IPOs, FPOs, and OFS differ in terms of risk, pricing, and market behavior.

  • IPOs may offer growth potential but carry listing risk
  • FPOs provide additional exposure to known listed companies
  • OFS usually offers liquidity events and may be priced at a discount

Regulatory Oversight

All three mechanisms—IPO, FPO, and OFS—are governed by SEBI regulations and exchange-level rules to ensure transparency and investor protection.

Summary

In simple terms:

  • IPO: First-time public issue by a private company
  • FPO: Additional public issue by an already listed company
  • OFS: Sale of existing shares by large shareholders via the exchange