What is an IPO?
There are thousands of companies that currently trade on the Indian stock market. These companies trade on two stock exchanges – the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). But how do they enter the stock market? Every company starts on the stock exchange as an Initial Public Offering (IPO).
Before an IPO is launched, a company only has a small number of private shareholders. This includes the founding members of the company and some angel investors. Retail investors (such as you) cannot buy private company shares. You can purchase shares only when the company goes public. By launching an IPO, companies offer a portion of their shares to the public. These shares can then be traded in the stock market.
An IPO plays an essential role in the growth of a company. During an initial public offering, a private company becomes public. This is done to attract investors and help the company raise capital. The money invested by the shareholders helps the company expand its operations and generate profits. IPO listing also helps to create brand awareness among retail investors and the general public. As a result, there are several upcoming IPOs this season.
Read on to find out more about IPOs and how you can select the best IPOs to buy.
Types of IPO
A company has two options when launching an IPO for the public. An initial public offering can be launched as a fixed price or book-building issue.
In a fixed price issue, the price of shares is fixed. Every financial aspect of the company is evaluated before fixing a particular price. A company’s quantitative and qualitative analysis helps set up a fixed price. This price is usually lower than the market value. So, retail investors are likely to make a profit from the IPO.
In a book-building issue, there is no fixed price for the shares. The company decides on a price band or a range for its shares. Then, the retail investors can bid for these shares. You can bid on the desired price that you would like to pay. The company evaluates the bids. Then, they set up a fixed price for the shares.
How to Find the Best IPOs to Buy
So should you invest your money in every IPO you can find? The answer is no. Not every IPO is going to make money for you. The wrong investment can even make you lose your money. The benefits and risks of investing in a new company go hand in hand. So you need to be an informed investor and learn about finding the best IPOs to buy.
Investing in profit-making IPOs is always a good move for retail investors like you. But the tricky part is to find out which companies will make profits in the future. So spend some time researching different IPOs. Make sure that the information you’re getting is from credible sources.
Understand the nature of the company’s business. As an investor, you must ensure that their business activities have clarity. Take a look at the promoters and the management of the company. They are the people responsible for taking the company forward. So make sure that your investment is in safe hands.
As an investor, figure out the company’s strategies and key strengths. This will give you an idea about the future prospects of the company’s business. As a result, you can make an informed decision about your position in the company. This will help maximize the profits of your investment.
Another thing you need to keep in mind is the risk factors for the company. Find out if there are any risks or liabilities associated with the company. Risk factors can pose a threat to the company’s business in the long run.
How to Purchase an Upcoming IPO
The process of purchasing an available IPO is fairly simple. You can take help from your broker or even do it yourself. The first step you need to follow is to have a trading account. Once the IPO is listed, fill in the required details. Pay for the number of shares that you would like to buy. Your money will be on hold till the allotment date.
IPOs are generally oversubscribed. So it is a matter of luck that the shares will be allotted to you if you get the shares! But if the shares are not allotted, you would get the entire amount refunded to your bank account.
Find out more about the upcoming IPOs in the last quarter of 2022 and research them. Consider investing in a company as per your risk profile and investment goals.
A Closing Thought
Making suitable investments is an essential part of growing your wealth. For a beginner, all of this can seem tricky. So continue learning about the stock market. There are several free resources available to improve your knowledge. Be persistent. Soon, you’ll start making progress in this money-making field.
Do not invest in an IPO just because it’s popular among investors. Many companies are overhyped. So, do your research before investing. Study the fundamentals of that particular business. Take help from established platforms to make financial decisions about upcoming IPOs.
You can also consult a financial advisor in the beginning. Professional advice can help sort your finances. They can guide you as you start your investment journey. Then you can continue to upskill yourself and grow your finances.
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Also Read: A Guide About IPO Allotment Status