Investing in an IPO? Things to Remember

The initial public offering (IPO) is a sort of public offering in which a company’s shares are sold to raise cash to assist the firm develop its business, boost its working capital, pay off debts, and so on. If the firm is not already public, they must transform it before they may issue an IPO. Both online and offline applications are accepted for IPOs.

Following receipt of applications, the public issue’s membership list shall be available to the public for at least 3 working days, but no more than 10 working days, as per clause 8.8.1.

There are two types of IPO: 

  • Book Building issue 
  • Fixed price issue

The prices in the Book Building issue are set within the bidding process’s range. The stakeholders must agree on a single price, and the business will then sell its shares to them at that price. It can only issue public securities such as IPOs and FPOs. Its demand may be tracked in real time and is available at a variety of pricing.

In a fixed-price issue, the price is stated in the brochure, and stockholders must purchase the shares at that specific price. The price for the public issue is set here, and it comprises of the total number of shares that will be available to the public, as well as the pricing details. In this scenario, this information is only available until the matter has been resolved by a public notice issued within 10 days following the delivery of allotment or reimbursement orders.

Right shares are granted on a pro-rata basis to current shareholders in the main market when they purchase more shares of the firm at a lower price than the real market price. These shares must be open for a minimum of 30 days and a maximum of 60 days, according to clause 8.8.2. 

Things to remember while investing in IPO:

Investing is defined as putting money into something with the prospect of its worth increasing in the future. It’s significant since it adds to financial stability and the attainment of long- and short-term goals. A person can expect to live a nice and secure life provided the appropriate decisions are made and closely monitored.

They may differ based on the asset class or investment type in which you are investing, so it is critical to read all of the fine print before making any decisions. Here are the some of the things which are essential to be remembered while investing the IPO:

  • Research the company well:

It is essential for the investor to know well about the industry and the company he/she is planning to invest in as it requires understanding and monitoring of data to eliminate the losses. The individual needs to dig deep into the company and know about it well to evaluate whether it is a good option to invest in the company or not. 

Interested people should go through the prospectus of the company it consists of all the details which are essential for the investors to know such as its financial performance, promoters, board of directors, regulations and statutory, the reason why they have issued the IPO, etc. 

Studying the recent developments, and the news about the company is very important as it helps them to study the development of the IPO. The individual should be completely satisfied before investing as analyse all the weak and solid points. Even though it is a time-consuming process, it plays a very vital role which can bring in major differences. 

  • Risk Management:

Investing in IPO has obviously risk attached to it. It is essential to understand the amount of risk you are going to carry. And, anyway the newly listed companies in the IPO have a lot of uncertainty which brings in more tension if not well researched. 

The competition in the market, the risks the company has faced and, the history it holds will play a big role in understanding the potential risks when we invest. 

  • Understanding your objectives:

It is not only essential to understand your objectives but also that of the company. Anyone should not invest because other people are investing as it can cause various loopholes in the planning. When the objectives are well understood by the individual it will help them to evaluate the amount of risk they want to bear, which industry they can invest in, and is their interests same as that of the company. 

Conclusion:

Investing anywhere plays a big role. Directions, monitoring, and an investing guide will always assist you in meeting your demands and achieving your objectives. Always read all of the terms and conditions and research the investments you are making before investing, since investments are never about mindlessly investing your money, but rather about safeguarding your future.

Author

This is a guest contribution by Harleen Kaur, a Chartered Accountant, a finance enthusiast and a passionate blogger running a personal finance blog @ Fintrakk.com sharing knowledge and simplifying things in the field of finance and investment for the common man.

13 thoughts on “Investing in an IPO? Things to Remember”

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