What is an IPO and how to invest in it

The stock market is a market full of uncertainties. If the market takes something else in one moment, it becomes a little difficult to guess the stock market in the second moment. You too will often think about investing in the stock market, but then you must be wondering how to invest in the stock market?

What is an IPO and how to invest in it

In fact, there is a no more difficult process of investing in the stock market. You just have to read a bit and get into the habit of keeping an eye on the stock market. Investment in the stock market can be done in two ways ...

1. Primary Market

2. Secondary Market

In the primary market, you invest through an IPO and INVESTING is done directly in the secondary market by investing in the shares listed in the stock market.


Let's understand about IPO in easy language…

What is an IPO?

The IPO is called INITIAL PUBLIC OFFERING. Actually, when a company offers its shares to the public for the first time, it is called an IPO. In this process, companies offer their shares to common people and it is under the primary market. If you want to know more simply, then you will say that the company collects funds through IPO and spends that fund in the growth of the company. Those who buy IPOs in return get a stake in the company. Meaning when you buy shares of a company, you own the purchased portion of that company. A company may also issue an IPO more than once. Generally, companies bring IPOs for many reasons. These reasons are also known in detail ...

Reasons for bringing IPOFOR EXPANSION

When a company feels that it is constantly moving forward and needs more expansion, that is, now the company has to expand in other cities as well and for this, it needs people too, in this situation the company issues an IPO. For the expansion of the company, although it can also resort to bank loans, the bank loan also has to be returned to the company with a fixed interest (INTEREST) ​​at a certain time. Whereas if the company collects the funds through an IPO, it does not have to return that money nor pay any interest.


This is the benefit of the company. Now let's talk about the benefits of people buying IPOs. Every investor who invests in an IPO gets a percentage of the stake in the company in return for the IPO purchased. That is, if a company has taken out some shares for IPO and you have bought two percent of those shares, then you own two percent of that company. In this way, both the company and the investor benefit from the IPO.

To Reduce Debt

When the company is in high debt, the company issues an IPO even in this situation. In such a situation, the company considers it better to repay the loan by taking a loan from a bank, to sell some shares of the company and to repay the loan. In such a situation, the debt of the company is also paid and the company also gets new investors and the investor also gets a chance to own some share in the company.

To launch a new product or service

There is another reason to issue an IPO. The company launches its new products and service. Whenever a company starts a new product or service, the company wants that service or products to be promoted and reach more and more people. Hence the company issues an IPO or Initial Public Offering (IPO).

Types of IPOs (IPO)

Types of ipo

The IPO can be divided into two ways and the reason for dividing it into two parts is to determine its prices.

• FIX PRICE ISSUE OR FIX PRICE IPO
• BOOK BUILDING IPO

FIX PRICE ISSUE OR FIX PRICE IPO

The company issuing the IPO discusses the issue of the IPO with the Investment Bank before issuing the IPO. In the meeting with the Investment Bank, the company issues an IPO to DECIDE. Any investor can subscribe to the IPO only on that fixed price. You can buy an IPO only at the price that the price has been set.

BOOK BUILDING IPO

In this, the company together with Investment Bank (INVESTMENT BANK) designates an IPO PRICE BAND. It is released only when the price band of the IPO is disabled. After this, the investor performs his bid subscription (SUBSCRIBE) from the disbanded price band. There are two types of book building IPO's price band ...

• If the price of the IPO is less in the price band, then it is called FLOOR PRICE.
• If the price of the IPO is more, then it is called CAP PRICE.

It is worth noting that the difference between CAP PRICE and FLOOR PRICE can be kept at 20% in the Book Building IPO.

How To Invest In An IPO?

how to invest IPO 2020

What is an IPO and why is an IPO issued? Now know how to invest in an IPO after all?

The company issuing the IPO opens its IPO for investors for 3-10 days. Meaning when an IPO comes, any investor can buy it within 3 to 10 days. A company keeps only 3 days to issue its IPO and some more than three days.

You can invest in an IPO within these days by visiting the company's site or through a registered brokerage. Now if the IPO is a fixed price issue, then you have to apply for an IPO on the same fix price, and if the IPO is a book building issue, then you have to bid on that book building issue itself.

IPO ALLOTMENT PROCESS

When the IPO opening is closed, the company allows the IPO. In this process, the company allows an IPO to all the investors and after the IPO is allotted to the investors, the shares are listed on the Stock Exchange (STOCK MARKET). After being listed in the stock market, shares are bought and sold in the secondary market. You cannot sell them unless the shares are listed in the stock market. Once the shares are listed in the stock market, then money and shares are exchanged between these two investors.

Once listed, you can also sell and buy shares according to the stock market timing.

SEBI – (SECURITIES AND EXCHANGE BOARD OF INDIA)  Monitors All The Process

SEBI

When any company plans to launch its IPO, it has to follow all the rules of SEBI. He has to make Sebi aware of every small and big reason for the IPO. The company gives a red herring prospectus to SEBI.

In This Red Herring Prospectus, The Company Has-

• BUSINESS DETAILS
• CAPITAL STRUCTURE
• RISK FACTOR
• RISK STRATEGY
• PROMOTORS AND MANAGEMENT
• PAST FINANCIAL DATA

This is all the information. Red Hearing Prospectus is found on the website of SEBI (SEBI- SECURITIES AND EXCHANGE BOARD OF INDIA). Every company is required to follow all the terms and conditions of SEBI.

Keep some things in mind before investing-

There are some important things to keep in mind before investing in any kind ...

Before investing, the company should also be compared with other companies.

The red herring prospectus of the IPO company must be read ...

Investing only after taking all things into consideration is the right idea...

Read More

By Mukesh Bangra