Frequently Asked Questions on IPO
IPO, short for Initial Public Offering, is the process by which a private company sells its shares to the public to raise capital. An IPO helps the company acquire a significant amount of capital that can be used to expand operations, solve cash-flow problems, invest in infrastructure, and more. The process of how to invest in IPO in India is quite simple. Follow the steps below:
- Open a DEMAT account and a trading account linked to your bank account. Log in to your trading account and visit the section on IPO subscription.
- Select the investor type and enter the company's name whose IPO you would like to subscribe to.
- Enter the number of shares you would like to purchase and input your bid price.
- Select your mode of payment and complete the transaction.
- The allotted IPO shares will be credited to the DEMAT account. If you do not get the IPO allotment, your money is refunded in the source account.
The three most important IPO basics to keep in mind are:
- Invest in companies that use the influx of capital to expand or refine their business. This shows that the capital will be used to generate more revenue.
- Run a background check on all the promoters of the company. Only invest in companies that are led by a distinguished management team.
- Invest in companies that have promising growth potential. You should invest in IPOs of companies that provide value to the customer and have the potential to bring something new to the market.
There are typically two different types of IPOs, a fixed price issue and a book building issue. While a fixed price issue provides a fixed rate at which the company's shares will be sold, a book building issue offers a price range within which company shares are valued. A book building issue is one of the IPO types wherein the company's value is fixed after evaluating the bids.
There are many advantages of IPO for an investor:
- One of the main benefits of IPO investments is their ability to provide a significantly high rate of returns.
- It helps you buy the shares of a company at a low price. This is extremely helpful when investing in companies that have a promising growth prospect.
- IPOs of good companies are great to meet long term goals.
There are three main guidelines for investing in IPO for beginners, namely:
- IPOs of well-known companies do not guarantee huge returns. Analyse the growth prospect of the company before making an investment decision.
- The performance of the IPO is linked to the performance of the market. If the market is bullish, the IPO of a company has more chances of doing well.
- Make sure the applicant's name matches the name of the bank account holder. This will help to ensure that your IPO application is not rejected.
An IPO allows you to buy shares of a private company going public for the first time. The process of how does an IPO work is straightforward. The IPO process in India allots the subscription of shares randomly to interested investors. The company issues a pre-defined quantity of shares. The influx of capital into the company can help it increase its revenue: thus, growing in valuation. This, in turn, benefits the investors by providing capital gains.
Here is how to buy IPO:
- You would first need a savings account, a trading account, a DEMAT account.
- Enter the name of the company whose IPO you wish to subscribe to. Input the number of shares you want to buy.
- Block the payment via the ASBA application process for IPO on the broker's website.
- If the company's shares are allotted to you, they will be directly credited into your DEMAT account.
The application process for IPO in India is relatively straightforward. To help you understand here is how to apply for IPO:
- Sign into your trading account on the broker's website and click the IPO subscription button.
- Choose the investor type that applies to you and select the initial public offering you wish to apply for.
- Input the number of shares you would like to purchase and enter your bid price.
- Your money will be blocked via a process known as ASBA, and funds will be debited from your account when your IPO units are allotted.
The IPO process in India follows the method of random allotment. Hence, not everyone who applies for the IPO receives the shares. The IPO allotment process is random, implying, the shares are only given to a set number of investors who have placed the correct bid and are chosen for the subscription by luck. The best way to increase the probability of getting the allotment of shares in a company's initial public offering process is to place IPO bids at the cut-off price.
An IPO calendar comprises important IPO dates, price band of the issue, the face value of the shares, and a few other details. The IPO calendar helps in knowing the upcoming IPO listing dates. Hence, it makes it easy for investors to plan their finances and get ready with their applications. You can easily find the upcoming IPO calendar on the internet and the websites of SEBI-recognised brokerage firms like Mirae Asset.