What are the different types of Public Issues?

Now that you have understood what an IPO is, its benefits, and the eligibility criteria, let's look at some other public issues. While the Initial Public Offering (IPO) is the most well-known method for companies to raise capital from the public, it is not the only one. Companies have various options to access public funds, each serving different strategic needs and purposes. These public issues play an important role in the financial markets, providing companies with the necessary resources to grow and expand while offering investors new opportunities.

Let’s look at the different types of public issues and understand their unique characteristics

• Follow-on Public Offering:

A Follow-on Public Offering (FPO) is when a company that is already publicly listed on a stock exchange decides to issue additional shares to investors. This is like a sequel to an IPO, where the company seeks to raise more funds after the initial offering. Let us take an example of Ravi’s tech company from the previous chapter, which went public a few years ago and now needs extra capital to develop a new product line. By offering more shares through an FPO, they can gather the necessary funds from the public. An FPO is a great way for companies to raise additional capital without taking on more debt.

• Rights Issue:

A Rights Issue is a way for a company to raise funds by offering its existing shareholders the right to purchase additional shares at a discounted price. Let's say Ravi’s tech company wants to fund a new research project. Instead of reaching out to new investors, it gives its current shareholders the chance to buy more shares at a lower price. This approach not only raises the necessary capital but also rewards loyal shareholders with a beneficial opportunity to increase their stake.

• Offer for Sale:

An Offer for Sale (OFS) is when existing shareholders, such as promoters or large investors, sell their shares directly to the public through the stock exchange. This allows them to monetize their investments in the company without the company issuing new shares. For instance, imagine a successful startup whose early investors wish to cash out some of their holdings. By selling their shares through an OFS, these investors can offer the opportunity to buy into a promising company to a broader set of investors. It's a way to unlock value for existing shareholders while providing new investors with a chance to participate in the company's growth story.

Importance of Public Issue for Investors

• Potential for Capital Appreciation:

Public issues often offer shares at competitive prices, providing opportunities for capital appreciation as the company grows and expands. Early investors in IPOs, especially if the company performs well post-listing, can benefit from significant returns.

• Liquidity and Exit Options:

Investing in publicly traded companies offers liquidity as shares can be bought and sold on stock exchanges. This liquidity provides investors with the flexibility to exit their positions when needed, based on market conditions or personal financial goals.

• Access to Promising Companies:

Public issues provide retail investors access to invest in promising companies that are poised for growth. It allows individual investors to participate in the success of companies across different industries and geographical regions.

• Income Generation:

Some public issues, such as rights issues and dividend-paying stocks, can provide investors with regular income in the form of dividends. This income stream can complement other investment strategies and provide stability to a portfolio. Investing in public issues offers retail investors numerous advantages, from potential returns and portfolio diversification to liquidity and access to valuable company information. These factors contribute to the attractiveness of public issues as an investment avenue.

Conclusion

Investing in public issues opens up numerous opportunities for both companies and investors alike. From the familiar Initial Public Offerings (IPOs) to the strategic Follow-on Public Offerings (FPOs), Rights Issues, and Offer for Sales (OFS), each type serves unique purposes in raising capital and expanding business horizons. For investors, these avenues offer potential for capital growth, liquidity for flexible investment strategies, and access to diverse industries and income streams. Whether you're aiming to capitalize on a company's growth story or diversify your portfolio, public issues provide the tools to participate actively in the ever-evolving set-up of financial markets. Stay informed, seize opportunities, and watch your investments grow!

Happy Learning!