Initial Public Offerings (IPOs) are like grand debuts for businesses, encouraging you to become a shareholder. It is where corporations first make their stock available to the general market. For a layman in the field of investment, knowing IPOs is your backstage pass to watching a firm go live on the stock market.
An IPO is the offering of a new issue of shares to the public by a company that has not previously floated its shares in the market. This big financial event allows the corporation to sell new shares to public investors to raise the required amount of money.
However, the stock price might be volatile, resulting in significant losses. Before investing in any firm, investors should conduct extensive studies to understand its operations and potential for growth. This is why here is a guide to get the maximum IPO returns on your investment before investing in any IPO.
Tips to know for investing in IPO
Know yourself
Your investment objective must be well-defined. Make sure not to borrow money to invest in an IPO. There is no guarantee of return. In the event of a loss, the money disappears into the black hole. The loss should also be factored into the interest rate you must pay on the borrowed funds. So,
Big backers do not necessarily equal big returns
Big names on the list of investment banks or major stock market brokers should not persuade you to buy the IPO they are supporting. They may use different calculating scales for their backing. Before investing in an IPO, you should follow the facts and data supplied by the firm in the prospectus and focus on its growth potential.
Don’t believe in the market hype
Keep in mind that the firm that is going public, as well as its investment banks, has invested heavily in the IPO process. They will take every opportunity to make it appear as if it is a popular item. Do your study and obtain objective information from the stock exchange’s official website.
Examine your risk-taking ability
Investing in an IPO can be extremely dangerous, as markets are often unexpected. So, take an honest assessment of how much risk you can tolerate.
Always read the prospectus
The Red Herring Prospectus (RHP) is a relatively easily available document that every company intending to go public is required to file with the Securities and Exchange Board of India (SEBI). This document contains much information about the company and its business, financial position, advantages and disadvantages, and facts connected with the IPO.
There are pros and cons to investing in an IPO. IPO investments can be very useful for investing in emerging firms with high growth capabilities. This means that you are allowed to get into a firm at its initial stages of growth, which can be very rewarding.
Many IPOs involve companies in innovative and unconventional industries. You can get insights into all new IPOs through apps like Moneycontrol. Investing in these companies might provide access to cutting-edge technologies and business concepts.