IPO vs FPO vs OFS vs Rights Issue: Meaning, Differences, Examples & When to Invest
What is an IPO (Initial Public Offering)?
An IPO is a company’s big debut on the stock market. It’s when a private company offers its shares to the public for the first time and becomes listed on stock exchanges like NSE or BSE.
Why Companies Do It:
- To raise capital for expansion, R&D, or debt repayment.
- To gain visibility and credibility in the market.
Recent Example:
- Ather Energy IPO (April 2025): The EV startup launched its IPO with both fresh shares and an Offer for Sale (OFS) component.
When to Invest:
If you believe in the company’s long-term vision and want to get in early.
Pros:
- Early entry into a growing company
- Potential for high returns
- Transparent and regulated process
Cons:
- Risk of overvaluation
- High volatility post-listing
- Limited historical data
What is an FPO (Follow-on Public Offering)?
An FPO is when a company that’s already listed on the stock exchange issues more shares to raise additional capital.
Why Companies Do It:
- To fund new projects or reduce debt.
- To strengthen their balance sheet.
Recent Example:
- Adani Enterprises FPO (2024): A ₹20,000 crore issue that was later withdrawn due to market volatility.
When to Invest:
If the company has a strong track record and the offer is attractively priced.
Pros:
- Invest in a proven company
- Often priced lower than market
- Transparent disclosures
Cons:
- Dilution of existing shares
- May signal urgent need for funds
What is an OFS (Offer for Sale)?
An OFS is a way for promoters or large shareholders to sell their existing shares in a listed company to the public.
Why Companies Do It:
- To comply with SEBI’s minimum public shareholding norms.
- To allow promoters to reduce their stake.
Recent Example:
- Ather Energy IPO (2025)Â included an OFS of 11.05 million shares.
When to Invest:
If the company is fundamentally strong and the offer is at a discount.
Pros:
- Quick and simple process
- No dilution of equity
- Often offered at a discount
Cons:
- No fresh capital to the company
- Promoter exit may raise concerns
What is a Rights Issue?
A Rights Issue allows existing shareholders to buy more shares at a discounted price, in proportion to their current holdings.
Why Companies Do It:
- To raise capital without going to the public.
- To reward loyal shareholders.
Recent Example:
- Tata Consumer Products (Aug 2024): Announced a rights issue to fund expansion.
When to Invest:
If you already hold the stock and believe in the company’s future
Pros:
- Discounted price for existing shareholders
- No dilution if subscribed
- Can sell rights entitlement
Cons:
- Requires upfront capital
- May signal financial stress
- Can dilute holdings if ignored
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Quick Comparison Table
| Feature | IPO | FPO | OFS | Rights Issue |
|---|---|---|---|---|
| Company Status | Unlisted | Listed | Listed | Listed |
| Purpose | Raise capital | Raise more capital | Promoter stake sale | Raise capital from existing shareholders |
| Share Issuance | New shares | New shares | Existing shares | New shares |
| Who Can Apply | Public | Public | Public | Existing shareholders |
| Dilution | Yes | Yes | No | Yes (if not subscribed) |
| Discounted Price | Sometimes | Often | Often | Yes |
| Capital to Company | Yes | Yes | No | Yes |
Final Thoughts
Each of these capital-raising methods—IPO, FPO, OFS, and Rights Issue—offers different opportunities depending on your investment goals.
- Go for IPOs if you want early exposure to a promising company.
- Choose FPOs if you trust a company’s growth story.
- Pick OFSÂ for short-term opportunities in quality stocks.
- Opt for Rights Issues to strengthen your position in a company you already own.
Always do your research, read the offer documents, and assess the company’s fundamentals before investing.