Should you subscribe to an FPO?

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.


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