What is FPO ?

You may have heard of IPOs, but what about FPOs? If you're exploring ways companies raise money in the stock market, FPOs—Follow-on Public Offers—are just as important to understand.

Let’s decode what an FPO is, why companies use it, and how it affects investors like you.

🧾 What is FPO?

An FPO (Follow-on Public Offer) is when a listed company issues additional shares to the public after its Initial Public Offering (IPO).

In simple terms:

“An FPO is the second (or third, or fourth...) time a company raises capital by offering fresh or existing shares to the public.”

🧑‍🏫 FPO Explained with an Example:

Imagine a company, ABC Ltd., was listed on the stock market two years ago. Now it needs funds for expansion, so it issues more shares through an FPO. These shares are offered to the public—just like during an IPO—but this time, the company is already listed on the exchange.

📦 Types of FPOs

There are two main types of FPOs:

1. Dilutive FPO

• The company issues new shares, increasing the total number of shares.
• Impact: Your ownership (as an existing shareholder) gets diluted.
• Used for: Raising fresh capital for business expansion, debt repayment, etc.

2. Non-Dilutive FPO

• Existing shareholders (like promoters) sell their shares.
• Impact: No change in total share capital; only ownership changes hands.
• Used for: Stake sale, compliance with public shareholding norms.

🔄 FPO vs IPO: Key Differences

Feature	IPO	FPO
Company Status	Unlisted	Already Listed
Investor Risk	Higher (unknown performance)	Lower (track record exists)
Pricing	Based on market analysis	Market-based or discounted
Purpose	Raise initial capital	Raise additional capital
Share Type	Always new shares	New or existing shares

💡 Why Do Companies Launch FPOs?

• 💰 Raise Capital: For expansion, acquisitions, or clearing debt
• 📊 Boost Liquidity: Increase free float of shares
• 🏛️ Meet SEBI norms: For minimum public shareholding
• 🔄 Monetize Promoter Holdings: Non-dilutive FPOs let promoters offload shares

🛒 Should You Invest in an FPO?

Here’s what to keep in mind:

✔️ Pros:

• Company already has a track record, reducing risk
• Shares may be available at a discounted price
• Useful for long-term investors looking for value opportunities

❌ Cons:

• In dilutive FPOs, your ownership percentage may reduce
• If the company is in trouble, FPO may be a red flag
• Stock price can be volatile before and after the offer

📆 FPO Application Process (Simple Steps)

1. Company files red herring prospectus with SEBI
2. Announces issue dates and price band
3. Investors apply via ASBA (Application Supported by Blocked Amount) through their bank or broker
4. Allotment and listing happen shortly after closing

🧮 Taxation on FPO Shares

• Tax treatment is the same as regular equity shares:
  • Short-Term Capital Gains (STCG) @ 15% (if sold within 1 year)
  • Long-Term Capital Gains (LTCG) @ 10% above ₹1 lakh profit (if held > 1 year)

🏁 Final Thoughts

An FPO is a trusted method for companies to raise additional funds, especially when they already have a performance history. For investors, it offers a chance to invest in a known company—often at an attractive price.

But like all investments, always evaluate the company’s fundamentals, the reason behind the FPO, and your financial goals before diving in.

FAQs

1. What does FPO mean in the stock market?

An FPO (Follow-on Public Offer) is when a company that’s already listed on the stock exchange issues additional shares to raise more capital.

2. How is FPO different from IPO?

An IPO is the first time a company sells its shares to the public. FPOs happen after a company is already listed and have more market transparency.

3. What are the types of FPOs?

There are two types:

• Dilutive FPO: Issues new shares (increases total capital)
• Non-Dilutive FPO: Existing shareholders sell their shares

4. Is investing in an FPO safe?

FPOs are generally safer than IPOs since you have access to the company’s past performance. However, one should always review the company’s purpose for raising funds.

5. Can retail investors apply for an FPO?

Yes, retail investors can apply through their broker or trading app, usually using the ASBA (Application Supported by Blocked Amount) process.

6. Are FPO shares listed at a discount?

Often, companies offer FPO shares at a small discount to attract investors, but it's not guaranteed.

7. What are the tax rules on FPO shares?

FPO shares are taxed like regular equity:

• Short-term: 15% if held for less than 12 months
• Long-term: 10% on gains above ₹1 lakh if held longer than 12 months