Should you subscribe to an FPO?
Deciding
whether to invest in a Follow-on Public Offering (FPO) can be a smart move,
especially compared to investing in an Initial Public Offering (IPO). Here’s
why:
1.
Familiarity with the Company: Unlike an IPO, where the company is new to the market, an FPO
involves an already listed company. This means you have access to the company’s
past performance, management history, and business practices. You can review
its earnings reports and stock market performance, which provides valuable
insights.
2.
Lower Risk: FPOs generally carry less risk compared to IPOs. Since the
company is already established, there is less uncertainty about its operations
and financial health. Often, the shares in an FPO are priced lower than the
current market price to attract investors, reducing the risk for new buyers.
3.
Opportunity for Arbitrage: Investors sometimes take advantage of the discounted price in an
FPO by buying shares at a lower price and then selling them at the current
market price for a profit. This is known as arbitrage.
4.
Easier Research: While you should still research the company’s performance and
history, evaluating an FPO is usually simpler than analysing an IPO. For
investors who prefer a less complex analysis, an FPO can be a more accessible
way to invest.
5.
Price Advantage: One of the main reasons for choosing an FPO over buying listed
shares is the price advantage. FPO shares are often offered at a discount to
the market price, making them a potentially cheaper investment.