Indian stock market has become one of the major investment avenues. In fact, more and more people are putting their savings in the equity market or mutual funds. The potential of returns that the stock market can make is very high. This makes it the most attractive place to put the money. However, in recent years IPO market has been getting high interest from investors. The investors are ready to put money in IPOs because the return generation in newly listed companies is very high. In addition, most of the recent listings have been outperforming. Therefore, in this article, we shall learn about What is IPO and its concept.
Meaning of Initial Public Offer (IPO)
Initial Public Offer means a private company deciding to become a public company by raising investment capital from the market. A private company goes public when it sells off its shares in the general public. In addition, any private company may go public.
Let us now learn how to invest in the IPO.
How to Invest in IPO?
There are two ways of investing in an IPO
- The first mode of applying is manually by filling the form with the broker. In fact, this is the traditional method and the applicant receives the shares in his demat account.
- The second mode of applying for an IPO is online. In fact, banks provide the facility to apply for an application through ASBA facility. The procedure to apply through bank online procedure is as follows:
- Login to your banking portal which is ASBA enabled.
- Visit the “Investment Section” on the page and select the e- IPO section.
- Select “Invest in IPO” and fill the applicable registration form. Add the DP details on the profile page.
- Complete the verification process and select the bank account number.
- The bank portal will take you to the “Invest in IPO” screen.
- Select the IPO and fill the form.
- Fill in the number of shares, bid price, and click on “Apply Now”
Most of the banks follow the above procedure to apply for an Initial Public Offer. However, there may be little difference in the process depending on the bank.
Factors to Consider Before Applying for an IPO
There is a flurry of new IPOs in the market. In fact, more and more companies are going public. Therefore, it becomes very important to select the right company for investment. Below are a few factors that an investor must consider before applying for an Initial Public Offer.
- Company Background
Before investing in an IPO, the investor must check its background. In fact, the investor must know about the functioning, nature and operations of the business. In addition, evaluation of financial statements and management decisions over past years must be considered before investing.
- Future Expectations
IPO is about investing in the current business with the expectation of better future performance. Therefore, it is important to understand the future outlook of a company before investing. In fact, aspects like expansions plans, product launches, debt clearance, etc. must be considered.
- Current Valuation
Before investing in an IPO of a company the valuations at which Initial Public Offer is brought requires evaluation. In fact, if the current valuation of the company exceeds the already existing companies on the stock exchange, investment should not be done and vice versa. To put it another way, the price-to-earnings ratio must be calculated before investing in Initial Public Offer.
- Read Prospectus
The prospectus is a document that consists of all the details of the company. Therefore, before investing in the IPO one must try to read the necessary information available in the document.
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