In this article, I am putting my best efforts to explain how to invest in IPO but before telling this I am going to explain about IPO.
What is IPO?
IPO stands for Initial public offering, it is also known stock market launch. IPO is a public offering in which companies usually sold their shares to the institutional investors, general public or on a securities exchange, for the first time.
Through this process, a private company transfigures into a public company. Initially, companies use public offerings to raise the expansion of capital, to produce the investments for early private investors, and to become publicly traded venture. In that case, the company doesn’t have to repay the capital to its public investors for selling shares. After the IPO, shares of the company trade freely in the open market and money moves between the public investors. (Initial Public Offering) IPO offers many advantages for newly opened companies but it also has significant disadvantages. If companies whose shares are already listed on the stock exchange is coming out with fresh shares than it is called new issue. In that situation, there are the dis-investments where the government sells their shares in public sector companies to create a buzz in the market.
Every company needs money to expand their business, purchase new machines for the company or to repay their loans. IPO is a best option to collect fund from the public. People who invest their fund in the company get rewarded by the company. To understand the whole process of investment and how to buy IPO share must read our next paragraph.
How to buy IPO shares:
There are two ways through which an individual can buy shares:
1) You can buy shares of that company who are already listed
If you want the buy shares of that company which already listed then you can buy them from the Stock Exchange with the help of brokers. This process is called buying from the secondary market.
2) You can also buy shares directly from companies when they come out with new issues of shares. This process is called buying from the primary market.
Why would you pick up shares through IPOs, rather than buy them from the market?
It is good to buy IPO shares because this share are available at cheap cost and later when these shares are listed on the stock exchange you will get the high price for the same shares. So it is profitable to buy IPO shares for future investment.
What if you don’t want to sell the shares soon?
You can take you time to sell to sell IPO shares. It happens many times that the companies who are going to be listed their shares in public for the first time, offer their shares in low cost to raise the fund for the company. In that way, Initial Public Offering offers investors to get involve in their prosperity cheaply.
These type of listing gains the main attractions of buying in the primary market.
But problem is that there are usually few applicants which are good for IPOs and their demand is more that the number of shares that are offered for sale. In this share, 25 % shares are reserved for retail investors who apply for shares in less than Rs 50,000. Many times retail portion is also oversubscribed for good issues. In this case, lots are drawn and shares are allotted to only a few individuals. At that situation, you may not get a number of shares or there is a probability that you may also not get an allotment, in which case your amount will be returned to you within 21 days. If you get few share of the company then extra money that you paid is also debited in your account.
If you do an allotment, then shares will be credited to your Demat account and one the shares listed you can sell then at a high price. If you don’t want to sell you IPO shares than you can hold it for a long time but most the people prefer to sell out if they are getting well above price for the shares.
Note: You must have a Demat account before applying for IPO shares otherwise your form will be rejected.
How to invest in IPO:
It is very simple to invest in the IPO shares but you have to open your eyes and ears both before investing in it. Normally, IPOs are laboriously advertised in the media because companies want huge publicity to launch their issues and to make it successful in the public. Before applying for IPO shares must read the prospectus for the issue properly.
This prospect contains the invitation to invite public for the subscription of shares of the company and some information about the company’s financials, management plans, and its track record. The prospects of the company are freely available on the website of the company or on the SEBI website. Here we mentioned step by step procedure to invest in the IPO shares:
- Open your Demat account
- Pick an application from the broker’s office. You can also get this form from any agents who sell a mutual fund or fixed deposit fund application.
- This form is free, fill the form carefully and submit it along with a cheque for the amount you want to apply for.
- In every issue, there is a minimum number of shares that one must apply for. This number is specified in the application form.
- You can submit this form to the collecting bankers or to the collecting agents for the merchant bankers to the issue
How to buy IPO shares online:
If you have a trading account in online brokerage firm then you can apply for IPO shares online. Follow the following step to buying IPO shares online
- Go to the site of broker and click on open IPO
- Then select an IPO shares which you want to buy from the list of IPOs open for application.
- After selecting an issue, an applications page will open on your screen
- Fill all the required information in the form
- Then click on submit it online.
Still, if you have any doubt then you get detailed instructions on the brokers’ websites
Note: There are some not-so-good companies who come out with IPOs. Before taking IPOs make sure that the company is good its growth prospects.