What is an Initial Public Offering (IPO)
What is an Initial Public Offering (IPO)?
Initial Public Offering (IPO)is the process in which a corporate/Company first time goes to public in order to sell its share through a stock exchange. Public is generally consist of Retail Investor, Foreign Institutions (FII), Domestic Institutional Investors (DII) and Employees of listing Company. The subsequent share sell by company is called Follow up Public Offering (FPO).
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Meaning of Initial Public Offering(IPO).
During IPO Company registers itself for the first time to sell its shares and raise funds through the primary market is also known as Initial Public Offering (IPO) .IPO is also called getting listed in a stock exchange. Once it gets listed in public domain on any exchange (NSE, BSE) people can trade and invest in shares of the Company. In simple words a private limited company change it status to Public Limited company.
Purpose of Initial Public Offering(IPO):
Purpose of IPO is to get access to the Capital Market. An IPO is a process by means of which a existing investor gets exit root, company can raise fund for its future expansion and other general corporate purpose. In technical term they are called, book building or fresh Issue.
In today’s world stock market is among the hottest investment opportunity. People are looking for opportunities to make more return in the stock market. One of the attractive ways to invest in stock markets and make money is through the Initial Public Offering (IPO).
Small young companies, startups as well as large privately owned Corporate issue IPOs. Small companies issue IPO to seek additional capital required for expansion and working Capital Large companies issue IPO to become publicly traded and discover value.
The investors are always keen on applying for the IPO application and get allotment. The reason being, multiple gains can be made on the listing of the shares on the stock exchanges within few days. This gain is called Listing Gain. Those investors also looking to make long term investments seek to invest in IPOs of good company for long term.
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There are certain points which an investor should keep in mind while investing in IPO, they are as follows:
Points to Keep in Mind While Investing in an Initial Public Offering(IPO):
- Read and understand the DRHP (Draft Red Herring Prospectus) of the company in detail.This is filled with SEBI to obtain permission for IPO.
- Read the report published by brokerage firms. Do your own analysis as well.
- Check the lock in the period between the underwriters of IPO and the insiders of the company.
- Seek more details about the company on the internet, Check its competitors position, market share, past performance and expected future growth.
- Invest in a company that has strong underwriters. Because Good underwriters or brokerage firms bring credibility to the IPO.
- Check the GMP regular to obtain the idea about expected listing gain, Gray Market Premiums (GMP) may fluctuate depending upon market conditions.
By reading the above points one thing should be very clear that a retail investor should never apply for an IPO blindly. It is difficult to select and pick the right company for investment during IPO. By following few basic steps you can understand the company’s profile and determine whether the IPO for the company needs to be applied or not.
In India SEBI is authority to allow Company to issue IPO. Both primary and Secondary market in India is regulated by SEBI.
The basic requirements to apply for Initial Public Offering(IPO).
- One Demat Account
- Internet Banking (ASBA) or UPI (Gpay, PhonePay Or BHIM app)
Best Demat Account for Initial Public Offering(IPO).
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