Initial Public Offering

Initial Public Offering

It helps smart investors to earn a handsome return on investments.


Initial Public Offering :

The process of Initial Public Offering (IPO) assists in the transformation of a privately held company into a private company. It helps smart investors to earn a handsome return on investments. If you are an informed investor then IPO can be the best option for you. But IPO can not be a great option for you. Benefits & Risks go hand in hand. 


IPO Meaning :

Initial Public Offering (IPO) refers to the process in which a private company or corporation can become public by selling a part of its stake to the investors. An IPO is started for the infusion of new equity capital in the firm. For facilitating the assets trading. Institutional investors, High Net Worth Individuals (HNI) can easily access the information of the first sale of shares in the prospectus. The prospectus is the document that contains the list of offerings.


Types of IPOs :

1. Fixed Price Offering :

Fixed Price Offering refers to the issue price which was set by some companies for the sale of shares. Investors come to know the price of stocks that the company decided to make public. The demand for the stocks in the market can be known after the issue is closed.

2. Book Building Offering :

In the case of Book Building offering the company which is starting an IPO offers a 20% price band on the stocks to the investors. The bidding process is done by interested investors before the final settlement of the price. Investors are needed to specify the number of shares they want to buy.


How To Invest In An IPO?

Certain steps are needed to follow in the creation of Wealth:

Decision :

The primary decision is to finalize the decision of 9nvestment in which type of IPO. Existing investors in the market have specialization in making investments but it can be a tough task for new ones. Investors can decide by going through the prospectus of companies that are initiating IPO.

Funding :

When an investor decided to invest in IPO the next step in the process is the arrangement of funds. In this case, an investor can use his/her savings to buy the shares. In some cases investors have no money for investment then they can avail themselves from banks & National Banking Finance Corporation.

Opening A Demat Cum Trading Account :

An investor without a Demat account cannot apply for IPO. The Demat account helps in providing the investors with the provision to store shares and other different financial securities in electronic mode.


The Application Process :

An investor can apply for an IPO through their bank account or trading account. Some financial organization provides you with the provision to bunch your Demat, trading or bank account.

Bidding :

An investor is required to bid while the process of applying for shares in an IPO. It is done accordingly to the stated guidelines of a prospectus.


Allotment :

In some cases, the demand for shares can easily exceed the actual number of stocks released in the secondary market. One can face the situation where he can get a fewer number of shares in comparison to demand.

Terms Associated With An IPO :

It is important to understand some basic terms about IPO:

Issuer :

An Issuer can be referred to the company or firm that wants to issue the shares in the secondary market.

Underwriter :

An Underwriter can be any person like a banker, financial institution, merchant banker, or broker. It helps in companies' top underwrite for their firms.


Draft Red Herring Prospectus :

DRHP is the document which makes which helps the public to get knowledge about the company’s IPO. It can be performed after the SEBI approval.


Under Subscription & Oversubscription :

Under subscription refers to the situation when the number of securities applied is less than the number of shares made available to the public. Oversubscription is the situation when the number of shares to the public is less than the number of shares applied for.


Closure :

Initial Public offering is considered as beneficial as it helps the equity company in enlarging the base and increase the prestige of the company or firm in the market. It also helps in providing a golden opportunity to take handsome returns. However, it is important to  learn the strategies before investing in an IPO.


Edited By Team CLIQTAX
 

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