IPO vs FPO: Key Differences, Pros, Cons & Which to Invest In (2026)

Overview

As they say, If you want to play the field, firstly you have to know the field same goes for the stock market. If you want to trade or invest in the stock market, first you have to know the market. There are some basic investment terms like IPO & FPO that emerging stock investors should know about before starting the stock market investment journey. IPO and FPO are the two basic fundamental ways where a company raises its money from the equity or stock market.

What is an IPO (Initial Public Offering)?

An Initial Public Offering (IPO) is a company’s “Grand Debut” on the stock exchange. It is the very first time a private company decides to sell its shares to the general public.

When a startup or a private firm reaches a stage where its growth requires massive capital to expand operations, pay off debts, or fund new projects, it “goes public.” By doing so, the company transitions from being unlisted to listed. For you as an investor, an IPO is your first chance to buy a piece of that company directly from the source.

Types of IPOs

There are two types of initial public offerings such as fixed price, and book-building.

• Fixed Price: As from the name, it is very clear that the company or firm fixes the price of shares and does not manipulate or alter them throughout the bidding process.

• Book Building: Investors play the role of godfather in book building, where they only establish the price of shares through the process of bidding.

• Dutch Auction IPO: A Dutch auction IPO is is an auction where investors place bids for a security offering and specify the buying price and quantity. Basically, it is an auction where the auctioneer or the company starts with a very high price then incrementally lowers it till some places a bid.

Also Read: IPO Market

What does it mean for the company?

When we invest in the Initial Public Offering, companies get their funding from it. Funds come with a huge responsibility to the company. Companies need to ensure effective management and growth so that their shareholders do not run into losses.

If you see it from the investor’s point of view by investing in an IPO, you become a part owner of that company which means if you buy shares of an XYZ company then you will become a part owner of that XYZ company.

How Are IPO Prices Set? (Book Building and Fixed Price)

There are two main ways in which a company decides what its “debut price” should be. 

1. Fixed Price Method: The company says, “Our shares are ₹100 each. ” You either buy them at that price, or you don’t.
2. Book Building Method: The company provides a price band, for example, ₹95 to ₹100. Investors “bid” within this range. The final price is discovered based on where the highest demand lies. This is the most common method today.

How to Apply for an IPO in India (ASBA / UPI Method)?

Applying for an IPO is now a digital-first process in India. You generally have two paths:

• UPI Method

Most retail investors use apps like Kite, Groww, or Angel One. You enter your UPI ID, place your bid, and then mandate or approve the request on your UPI app, like Google Pay or PhonePe. The money is “blocked” in your account; it doesn’t leave your bank until you get the allotment.

• ASBA (Application Supported by Blocked Amount)

This is done through your Net Banking. You log in, go to the “IPO/Investments” section, and fill in your Demat details. It is considered the most reliable method, especially for large applications above ₹2 Lakhs.

Facts about IPO

When you purchase a share of a company, the price is decided by the seller and the buyer but it is different in the case of an IPO. The price of the share is decided by the company’s owner.

Let’s think of it that way, if you are the owner of a company, you would obviously want your shares to be sold at a higher price to gain maximum profit out of it. Because of that many company’s share tends to become expensive or overvalued that’s why investing in an Initial Public Offering is not necessarily the right decision every time.

Sometimes it happens that because of the hype of an IPO people invest in it, but later on it comes to its actual price, If somebody has invested for the purpose of long-term, they can face some loss in that situation. 

Although it helps in greater capital market access, raising money, increasing brand equity, and greater liquidity for investors.

What is an FPO (Follow-On Public Offer)?

If the IPO is the debut, the Follow-On Public Offer (FPO) is the “Sequel.” An FPO happens when a company that is already listed on the stock exchange, like NSE or BSE, decides to issue additional shares to the public.

Since the company is already trading in the market, an FPO is usually seen as a more stable move. The company might need extra funds for a specific new project or to improve its debt-to-equity ratio. Unlike an IPO, where you are guessing the company’s public performance, an FPO gives you years of historical data to analyze before you put in your money.

Types of FPO: Dilutive and Non-Dilutive

Not all FPOs are created equal. They generally fall into two categories:

• Non-Dilutive FPO: No new shares are created. Instead, the existing big players, such as the founders (promoters) or early private investors, sell their own shares to the public. The total number of shares stays the same, so your ownership percentage isn’t diluted. The money from this sale goes to the individuals selling the shares, not to the company’s coffers.

• Dilutive FPO: The company issues brand-new shares. While this brings fresh cash into the company’s bank account, it increases the total number of shares in the market. This dilutes the ownership of existing shareholders and often slightly reduces the Earnings Per Share (EPS).

What does FPO mean for the company?

FPO can be exercised for various reasons: 

If a company wants fund for a new project or want expansion, then it can offer FPO. People mistakenly tend to understand Follow On Public Offer as the Right Issue but it is totally wrong and different. Only existing shareholders can participate in the Right Issue. But that’s not the case for Follow On Public Offer. 

Anybody can invest in Follow On Public Offer, whether it is an existing shareholder or a non-existing shareholder they both can participate in it.

Although FPO has a high probability of increasing capital, at the same time there is also a probability of dilution of an EPS (Earning Per Share).

What does it mean for Investors?

FPOs directly impact the existing shareholders of the company as it dilutes their ownership percentage representing a small piece of share of the company. Furthermore, it affects the stock price because the shares offered at discount attract buyers and hence results in lowering the market price in the short term. Before investing in FPO, investors should evaluate the purpose and timing of FPO.

How to Apply for an FPO in India?

Below are the steps you need to follow in order to apply for an FPO in India:

1. Start with a Demat & Trading Account

Before anything else, you need a Demat and trading account because this is where your shares will be stored after allotment. Think of it as the base of your entire investment process. Platforms like Dhan, Zerodha, Groww, and Upstox make it easy to open one. Without this, even if you apply, you won’t be able to receive shares.

2. Keep Track of FPO Announcements

FPOs don’t stay open for long, so staying updated is important. You can check your broker app or follow updates on exchanges like the NSE and BSE. If you miss the application window, you miss the opportunity completely.

3. Understand the Offer Before Applying

Before applying, take a moment to understand what the company is offering. Since it’s already listed, you can check its past performance, current share price, and why it is raising funds. This step helps you make a more informed decision instead of applying blindly.

4. Apply Through ASBA (Application Process)

The actual application happens through ASBA, which stands for Application Supported by Blocked Amount. Whether you apply through net banking or your broker app, your money is only blocked, not deducted. It will only be debited if you get the shares.

5. Fill in Your Application Details Carefully

At this stage, you’ll enter details like the number of shares, bid price, and your Demat information. This step requires attention because even a small mistake can lead to rejection of your application.

6. Approve the UPI Mandate (If Applicable)

If you’re applying through an app, you’ll receive a UPI request on platforms like Google Pay or PhonePe. You must approve this request to block your funds. Without approval, your application remains incomplete.

7. Wait for Allotment and Final Outcome

Once the FPO closes, the company processes all applications. If you are allotted shares, the blocked amount is deducted, and shares are credited to your Demat account. If not, your funds are released back automatically.

Risks Involved in IPO and FPO 

When people talk about IPOs and FPOs, the focus is usually on opportunity, but understanding the risks is what actually makes you a smart investor. Both come with their own set of challenges, and knowing them helps you avoid costly mistakes.

Risks in IPO (Initial Public Offering)

1. Lack of Historical Data: In an IPO, the company is entering the stock market for the first time. This means you don’t have a strong track record of how it performs as a listed entity. You’re mostly relying on projections and promises. In simple words, here you’re investing based on future potential, not proven performance.

2. Overvaluation & Hype: IPOs often create a lot of buzz, and because of demand, companies may price their shares aggressively. Here, the major risk involved is that you might end up buying at a higher price than the actual value, leading to losses after listing.

3. Listing Day Volatility: IPO stocks can move sharply on the listing day, either it can go up or down. So, if the stock lists below the purchase price, there might be a chance that you may face immediate losses.

4. Limited Information Transparency: Even though companies release prospectuses, retail investors may not fully understand all the details. Therefore, due to this, important red flags can be missed.

Risks in FPO (Follow-on Public Offering)

1. Share Price Dilution: When a company issues additional shares, the ownership percentage of existing shareholders reduces. As a result, this can put downward pressure on the stock price.

2. Negative Market Sentiment: Sometimes, FPOs are announced when a company needs funds urgently (like debt repayment). If investors see this, they’ll understand this as a weak signal, and this will cause the stock price to fall.

3. Pricing Near Market Value: Unlike IPOs, FPOs are usually priced close to the current market price. Here, chances are 100% that there’s limited room for all those quick gains.

4. Short-Term Price Drop: After an FPO announcement, stock prices often dip due to increased supply, and this might result in short-term losses even if the company is fundamentally strong.

What’s the Difference Among an IPO, FPO and Rights Issue? 

Let’s understand the difference between all three with an table:

Basis	IPO	FPO	Rights Issue
Meaning	First-time public issue of shares	Additional shares issued by a listed company	Shares are offered only to existing shareholders
Who Can Invest	General public	General public	Only existing shareholders
Company Stage	Private company	Already listed company	Already listed company
Purpose	Raise initial capital	Raise additional capital	Raise funds without bringing new investors
Share Allocation	Open to all investors	Open to all investors	Given in proportion to existing holdings
Price	Based on valuation & demand	Market-driven pricing	Usually offered at a discount
Ownership Impact	New investors enter	More investors + dilution	Existing shareholders can maintain ownership
Risk Level	Higher	Moderate	Lower (for existing investors)
Control	Promoters may dilute control	Further dilution possible	Helps promoters maintain control
Investor Advantage	Early entry opportunity	More clarity due to past performance	Discounted shares + priority access

Should You Invest in an IPO or FPO? Final Verdict

When it comes to choosing between an IPO and an FPO, there’s no one-size-fits-all answer. It really depends on what kind of investor you are, how much risk you’re comfortable with, and what you expect from the market.

If you’re someone who likes the excitement of entering early and doesn’t mind taking a higher risks, IPOs can feel attractive. They give you a chance to be part of a company’s journey right from the beginning. But the other side is clearly visible here; you’re relying heavily on expectations, hype, and limited data. Things can go right, but they can also go wrong just as quickly.

On the other hand, FPOs are generally more grounded. Since the company is already listed, you have access to real performance data, past trends, and market behavior. This makes decision-making a bit more practical and less speculative. However, don’t expect dramatic short-term gains here, because FPOs are usually about steady participation rather than quick profits.

So, Final Call Is:

• If you’re a beginner, it’s usually better to lean towards FPOs or fundamentally strong companies, because you’re making decisions based on actual data, not just assumptions.
• If you’re an experienced investor who understands market cycles and risk, you can explore IPOs selectively, but only after proper research, not just hype.
• If your goal is long-term investing, both IPOs and FPOs can work, but only when the company itself is strong. 

Conclusion

Investment in an IPO and FPO no doubt gives benefit to the company and to you too but with a fair share of risk involved in it.

While investing in an Initial Public Offering, you must have to have a good capacity to digest the risk because you do not have much idea about the company, But it is different for FPO which is relatively safer than the IPO because it is already a tried and tested company which running in the long run.

If you consider yourself a long-term investor and have a great appetite for risk with high hopes in the company then you can consider investing in an Initial Public Offering as it has more potential to return your money if the company kicks off on a good note. as one says, risk and returns are correlated, so one must take an informed decision.

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Now that we have learnt about IPO and FPO, One must read about the entity ( SEBI ) which regulates the whole market. To read more about it – Click Here