What is an Initial Public Offering(IPO)?
IPO or Initial Public Offer means Initial Public offering. It is a process that allows the private company to turn into a publicly held company wherein it offers its securities to the public for sale for the first time. An IPO enables the company to list its name on the stock exchange.
In which market is the IPO launched?
Securities can be traded in either of the two markets i.e. primary or secondary. An IPO is launched in a primary market.
What is the purpose of offering an IPO?
Growth & expansion
The apparent reason behind issuing an IPO is to raise money for business expansion and growth. It is a direct opportunity for the public to invest in the primary market and become a company’s investor or stakeholder.
Credibility & acknowledgment
It is an effective way to enhance their credibility in the market. In addition, an IPO offers a large-scale public acknowledgment to the company where the public gets to learn about its operations and market presence.
Worth of the company
It is an apt way to know the worth of the company. It would open prospective opportunities for ventures & mergers to the company. It also enables public stakeholders and investors to know about the financials and growth prospects of the company. It would help them in making a decision on whether to invest or not.
Who is qualified to invest in an IPO?
Apart from individual investors, the following can also invest in an IPO:
- QIB(Qualified Institutional Buyers) i.e. Mutual Funds, Banks, Financial Institutions, Foreign institutional buyers, and others;
- Non Institutional buyers i.e. Corporations, Non-retail individual investors and others
What is a Red herring prospectus in an IPO?
If you are a new investor, the red herring prospectus may seem daunting to read. A red herring prospectus is a document drafted by the company, submitted & approved by SEBI, and issued to the public. It is a document that contains detailed information about the company’s plans and financials.
It includes how the company would use the received money from the IPO, its present shareholding pattern, probable risks associated, growth objectives, SWOT analysis for review, and many more. It is advised to study the financials and other important information about the company. It facilitates making the right investment decision.
How many types of IPO can be offered by companies?
There are two types of IPO offered by the issuing company. One is a Fixed Price offering and the other is a Book-building offering.
- Fixed Price offering:-
In this, the IPO issuing company declares the price of its IPO beforehand. So, as an investor, you have to make the full payment for the shares you intend to buy through the IPO.
- Book-Building offering:-
The company does not declare the price beforehand, instead, it offers the price of the share in a band or range, most probably 20%. Interested investors place their bid(s) in accordance with their capacity. The lowest level of the price range is also known as the floor price and the upper limit is known as the cap price. It gives the company a way to see the response of investors towards the IPO and accordingly finalize & declare the final allotment price.
What is the role of an underwriter/ Investment bank in an IPO?
Underwriters are the expert(s), belonging to a financial organization, who are qualified to evaluate the risk of investors in any investment. They are hired by the IPO issuing company to raise investments by offering new securities. If you want to test the success probability of an IPO, check out the names of underwriters. If they are big and reputed then the chances of hitting success are more.
What is the meaning of the lock-up period?
A Lock-up period means a ‘duration of time’ during which the company’s personnel, management, and investors are not meant to sell their shares. It usually is declared when a company witnesses a downfall after the IPO goes public. As soon as the lock-up period ends, the share prices of that company on stock exchanges see a fall in their stock prices.
How to apply for an IPO?
1. Step-by-Step Guide to apply using Samco App
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Open the Samco Trading App: Download and open the Samco Trading App from the Google Play Store or the App Store.
Access Your Profile: Log in to your account and access your profile within the app.
Navigate to Apply IPO: Find the IPO application section within the app’s interface.
Select the Desired IPO: Choose the IPO you want to apply for from the list of available options.
Specify the Quantity: Enter the quantity of shares you wish to apply for.
Provide Your UPI ID: Input your UPI ID for payment processing.
Agree to Terms & Conditions: Review and agree to the terms and conditions for IPO application.
Submit Your Application: Complete the application process by submitting the required details.
Approve the Mandate Details: If prompted, approve the mandate details for the IPO application.
Confirmation: Upon completion, you will receive a confirmation that your application has been successfully submitted.
If you are willing to invest in IPOs then keep in check the following vital things:
- 2. IPO calendar:
One can easily seek the recent IPO Calendar of a year on websites prior to their launch. It will give you substantial time to read the prospectus and research the company’s performance, business plans, management goals, etc. Compare it with other listed companies in the sector and assess the SWOT analysis of the company before you decide to place your bid.
- 3. Account opening status:One has to open the following accounts before investing in any IPO:
- A Demat Account is needed to hold the shares in electronic form. It is a must.
- Bank Account. Usually, banks offer the ASBA(Application Supported by Blocked Account) facility to their account holders which enables them to avail the facility of applying for IPOs via their net banking platform. Ensure to keep sufficient funds in your bank account before placing the bid.
- Trading account
- 4. Process of application and investment:Once you decide to invest in your chosen IPO and you have the required accounts, then the process of investment is easy to comprehend. Apply for the IPO through ASBA and the total amount with respect to your bid shall be blocked from your respective bank account.
The said amount will be kept separately and can’t be used for any other purpose. Once the said company finalizes allotment and credits the shares to your Demat account, the blocked amount will be debited from the account. However, if you fail to receive the allotment, the blocked amount will be unblocked and made available for use.
What to consider before staking money on an IPO?
- If you have the time, understand the probable risks and returns from that IPO investment. If you are in doubt, consult our financial experts.
- The market is volatile and you are subject to the risks of unexpected fall in the stock price of the company once it goes to the secondary market for trading. So, bear that in mind.
- A company offering shares to the public through an IPO is not indebted to refund the capital to public shareholders, once it has allotted the shares to the investor.
Get all the updates and more information about forthcoming IPOs on our fast and reliable platform. We help in providing you with accurate news about the Demat account, trading process, and securities. We strive hard to meet your trust and expectations.
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