With the increasing strength of stock markets, many companies have launched their IPOs with high valuations to take advantage of market sentiments. These new issues are an opportunity for both the company and the investors. Let us see how.
Why one should invest in IPOs
Initial Public Offerings (IPOs) have always been an attraction among investors because, in most cases, the company’s stock price increases after its IPO. A company can raise huge capital from public investors, and in return, investors realize significant gains from their investment.
Once the IPO process is complete, the company’s shares are listed and available for share trading in the open market. Investors can make significant profits in the short term with the practice of buying low and selling high or retaining them for long-term gains. It leads to a rush to subscribe to such quality stocks at a reasonable price.
A Range of Benefits
1. Wealth Generation with Equities
An IPO offers an opportunity to grow your funds with the growth company in the long run. You need to hold the IPO shares for a longer period. It will be your productive investment as you are investing your funds in a business, and you may appreciate your decision-making for significant returns in the future.
2. Reasonable Equities
IPO shares will be increased in the secondary market for sure. Instead of buying these shares in the secondary market, one can take advantage of the primary market and buy shares at reasonable prices.
3. Advantage of Retail Quota
SEBI encourages the participation of retail investors. Therefore, following a specially designed allotment method for retail, companies have to allot maximum IPOs to individual investors. However, allotment is subject to the company’s red herring prospectus. Allotment to retail investors ensures high liquidity in the secondary markets; therefore, the retail quota is essential.
4. Trustworthy investments
Only quality companies can meet the criteria defined by SEBI for an IPO. You can trust a company to invest your funds. You don’t have to research at many companies like in the case of the secondary markets. But there are a few points one need to consider before finalizing the investment:
- Check if it is an exit strategy for early investors.
- Look at the proportionate allocation to each category given in the prospectus.
- Look at the valuation of stocks.
- You can compare the company’s growth with its peers’ growth in the industry. It will help you to determine the potential of the company.
How to invest in IPOs?
Mainly, investors investing in IPOs are retail investors, high net worth individuals, and institutional investors. Retail investors are the investors from the general public.
As a retail investor, you can apply for an IPO by the offline method or online method. For the online method, you need to log in to your trading portal offered by your broker. You can apply using your trading portal.
In the offline method, you need to submit the physical form to the IPO banker or the broker.
How to open demat and trading account?
You can apply for a demat and trading account online at a broker website. Most of the stockbrokers offer free demat and trading accounts together. Submit the requisite documents and go through the in-person verification process. After successful verification, you will be provided with your account log-in details.
Using your login credential, you can use the broker’s trading portal and apply for an IPO. You can check regular updates on IPO allotment. Most investors prefer the online mode. One of its reasons is a hassle-free refund. You will get automatic refunds in case of no IPO allotment. An investor can stay informed about upcoming IPO listings at their trading portal provided by the broker.
