What Is FPO In The Share Market: Full Form, Features & How It Works

A Follow-on Public Offering (FPO) is when a listed company issues additional shares to investors. It helps raise extra capital for expansion, debt repayment, or other strategic business needs.

Let’s understand it with the help of an example:

Imagine a company called FreshMart Ltd., which launched its IPO in 2021, offering 1 crore shares at ₹100 each. It raised ₹100 crore to open retail stores across India. The IPO did well, and the company got listed on the stock exchange.

Now in 2024, FreshMart wants to launch a grocery delivery app. For that, it needs ₹60 crore more. So, it goes for an FPO, offering 50,00,000 new shares at ₹120 each.

That’s 50,00,000 × ₹120 = ₹60 crore raised without taking a loan! Isn’t it interesting how companies can tap the public again even after an IPO?

This blog is all about FPOs, what they are, their types, process, features, and how they actually work. Let’s get started!

What is FPO?

An FPO or Follow-on Public Offering happens when a company that is already listed on the stock exchange issues more shares to the public. Unlike an IPO (Initial Public Offering), which is the first time shares are sold, an FPO is like the second round of fundraising.

Fun Fact: Globally, FPOs raise billions every year. For example, according to Economic Times, Indian companies raised over ₹50,000 crore through FPOs in the last decade, proving how popular they are with investors.

Let’s understand it with the help of an example:
Imagine TechGrow Ltd., which launched its IPO two years ago by selling 10,00,000 shares at ₹100 each, raising ₹10 crore. Now it needs more money to expand, so it launches an FPO of 5,00,000 shares at ₹120 each.

• 5,00,000 × ₹120 = ₹6 crore raised in the FPO.

This way, TechGrow funds its projects, and investors get a chance to buy more shares in a company they already know and trust.

Types of FPOs:

FPOs are broadly classified into two main types: Dilutive and Non-Dilutive. Each type impacts shareholder ownership and company fundraising in different ways.

Dilutive FPO:

In a dilutive FPO, a company issues new shares, increasing the total outstanding share count.
This reduces existing shareholders’ ownership percentage but helps raise funds for the company's needs or expansion.

Let’s understand it with the help of an example:

Suppose GreenTech Ltd. already has 1 crore shares in the market, and you own 1,00,000 shares.So your ownership = (1,00,000 ÷ 1 crore) × 100 = 1% ownership

Read More – What is a Public Company? Definition, Features & Examples

Now, the company wants to raise funds and issue 50,00,000 new shares through a dilutive FPO.

Total shares after FPO: 1 crore + 50,00,000 = 1.5 crore shares

Your shares are still 1,00,000, but now:

New ownership = (1,00,000 ÷ 1.5 crore) × 100 = 0.67% ownership

So, your ownership percentage dropped from 1% to 0.67%; that's dilution.

However, the company now has more money (e.g., 50,00,000 shares × ₹100 = ₹50 crore) to expand or pay debt.

Non-Dilutive FPO:

In a non-dilutive FPO, existing shareholders sell their shares; no new shares are created. The total number of shares remains unchanged, so existing shareholders' ownership percentage stays the same.

Let’s understand it with the help of an example:

Imagine BrightTech Ltd. has 1 crore shares already listed on the stock exchange. The company’s promoter owns 40,00,000 shares (40% of the total shares).

Now, the promoter wants to sell 10,00,000 of their shares to the public through a non-dilutive FPO.

Here’s what happens:

• No new shares are issued; the total share count remains at 1 crore.
   
• The promoter’s holding reduces from 40,00,000 to 30,00,000 shares (now 30% ownership).
   
• The public now owns 70,00,000 shares instead of 60,00,000.

Since the total number of shares stays at 1 crore, there’s no dilution in value for other shareholders.

Comparison of Dilutive and Non-Dilutive FPOs

Let’s first put both types of FPOs next to each other so it’s easier to spot the differences.
 

This table makes it clear that while a dilutive FPO benefits the company by raising funds, a non-dilutive FPO benefits selling shareholders without affecting the ownership percentages of others.

What Are The Key Features of FPO?

The key features of Farmer-Producer Organisations (FPOs) are designed to empower farmers and enhance their economic and social well-being. 

The table below outlines these core aspects:

These features make FPOs powerful instruments for inclusive agricultural growth, promoting sustainability, self-reliance, and prosperity among farming communities.

How FPO Works: Step-by-Step Process

The Follow-on Public Offer (FPO) process involves several structured steps to ensure transparency, regulatory compliance, and investor confidence. Here's a step-by-step overview of how an FPO works:

By following this systematic approach, companies can successfully raise additional capital while maintaining investor trust and market credibility.

Also Read - Should You Invest in IPOs in 2025? A Complete Pros & Cons Guide

FPO vs IPO: Key Differences

IPO (Initial Public Offering): A company’s first-time sale of shares to the public to raise fresh capital.

FPO (Follow-on Public Offering): A listed company issues additional shares to raise more funds for growth or debt reduction.

Let’s understand it with the help of an example:

IPO (Initial Public Offering): When a company sells its shares to the public for the very first time to raise fresh capital.

FPO (Follow-on Public Offering): When a company that is already listed issues additional shares to raise more funds for growth or debt reduction.

Let’s understand it with the help of an example:
Coal India, the world’s largest coal producer, launched its IPO in 2010, raising about ₹15,000 crore, one of India’s biggest IPOs. Later, in 2015, the Government of India used an FPO to sella  10% stake, raising nearly ₹10,000 crore from investors.

In short:

• IPO: First-time entry into the stock market.
   
• FPO: Additional fundraising by an already listed company.

Conclusion

An FPO happens when a company already listed on the stock market sells more shares to raise money. This money can be used for growth, paying debts, or starting new plans. It’s a smart way for companies to get funds without taking loans. For investors, it’s another chance to invest in a company they believe in.

FAQs:
 

Q. How does an FPO affect share price?

In a dilutive FPO, issuing new shares often reduces earnings per share, which can lower the share price temporarily.

Q. What happens to existing shares after an FPO?

In a dilutive FPO, new shares increase the total share count, reducing existing shareholders’ ownership percentage and control.

Q. Who issues FPO?

In India, the Ministry of Food Processing Industries issues the FPO mark, which certifies standards for fruit and processed food products.

Q. What are the SEBI rules for FPO?

As per SEBI, an FPO must follow norms like the QIB Route, where at least 75% of the offer is reserved for Qualified Institutional Buyers (QIBs). Additionally, if a company changes its name, at least 50% of revenue in the previous year must come from the new business activity.
 

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LoansJagat Team

‘Simplify Finance for Everyone.’ This is the common goal of our team, as we try to explain any topic with relatable examples. From personal to business finance, managing EMIs to becoming debt-free, we do extensive research on each and every parameter, so you don’t have to. Scroll up and have a look at what 15+ years of experience in the BFSI sector looks like.