Before starting the discussion on how to invest in an IPO, let;s checkout some essential points which should be known by every investor before investing in an IPO. The term IPO refers to the Initial Public Offering. The significant objective of IPO (Initial Public Offering) is to convert private or cooperation companies into public companies. To every intelligent investor, it allows earning higher returns on their investments.
However, being an informed investor investing in an IPO is the smart move. But it is not fixed that every IPO has a great opportunity. The benefits of IPO and risk included varying from company to company. But before diving into the IPO, you must first learn about the basic and important terms used. Although if you want to get complete share market knowledge, you can also join the Stock Market Institute In Delhi.
Meaning Of IPO and How It Works?
IPO (Initial Public Offering) can be defined as giving the ownership stake or selling the stake of ownership to the investor. Also, in this process, a private company or cooperation will be converted into a public company. To infuse the new capital into the company’s firm, an IPO is initiated, raising money for future growth, or investment made by every investor can be monetized.
Once the process of IPO offering is completed, the shares of that company can be easily traded in the market. The stock exchange imposes a minimum free float in both absolute terms and the total market capital ratio.
Types Of IPO
There are two common types of IPO. They are-
Fixed Price Offering
The Fixed Price IPO refers to the initial price of a share that the company sets at the sale of shares. Investors only know the cost of those shares of the company and decide to make them public.
Demand is known when the issued time of shares closes. When making an application for this IPO, investors need to pay the total price of shares.
Book Building Offering
A 5 to 10 per cent price band is given to the investor in the book building IPO. Interested investors can bid before the announcement of the final share price. Here, every investor needs to specify how much they are willing to pay per share, how many claims they want to buy, and the intent behind purchasing the shares.
The term lowest share price refers to the floor price, and cap price refers to the highest price paid. Investors’ bid is the crucial part that determines the per-share price decision.
How To Invest In An IPO?
Now here is an important topic: how to invest in an IPO. Every investor should follow some steps which make sure that they are moving on the right path of their wealth creation. And those steps are-
Decision
This is the primary step for every investor, in which they need to select in which IPO they need to apply. It is a simple step for ordinary investors, but it may not be very comforting for new ones. However, investors can also choose by going through or taking the help of companies’ prospects.
With the help of prospects, investors will get the idea regarding the company’s primary purpose of business and planning of raising stocks in the market. Now when you made right decision let’s have a look towards the second important step.
Also Read-Brokers Should Speak With Stockbrokers
Funding
As an investor, once you have decided on the IPO in which you want to invest, the second important is the arrangement of funds. For buying the shares of a company, an investor can use his savings.
If, in any case, an investor does not have any savings in his bank account, then he can also take loans from credit banks and non-banking financial organizations. But in this, he needs to pay some fixed rate of interest,
Opening Demat Account Cum Trading Account
Applying for an IPO is not possible if the investor does not have a Demat account. The primary purpose and function performed by Demat accounts are to store the shares and other financial assets electronically. In some straightforward steps, opening a demat account is possible. One must submit his identity proofs, including an aadhar card and pan card.
The Process of Application
An Investor can send the application with the help of a bank and trading account. The application is processed with the ASBA facility, wherein the funds are blocked in your bank account. Once the application is processed and the allotment is done, the fund is transferred to the company account. Otherwise, it is released immediately for your use, making it convenient for investors to apply for an IPO.
Bidding
Generally, the majority of the IPO pricing is done with Book Building Method, wherein the investor has the option to bid the price or send the application at the cutoff price so that the application is processed. The application would be in lot size. The value per application is in the range of Rs 10000 – 15000. Allotment would be done on a pro-rata basis base on the no. of subscription. Allotted number of shares will automatically credited in investors demat account after the completion of distribution.. The stakes are listed on the stock exchange within seven working days after the IPO is finalized.
Allotment
In some cases, sometimes, from the actual number of shares, the share demand exceeds. And in some cases, investors will get fewer or fewer number shares compared to the claims he demanded. If these cases happen, the bank opens the arrested funds partially or entirely.
But any investor gets full allotment size. Then in six working days, he will receive a Commentary allotment note (CAN). Once the total number of shares has been allot, it will be automatically credited to the investor’s Demat account.
Once the steps mentioned above are successful, the investor needs to wait for one week before the stocks will be listed in the share market.
The Bottom Line
Many people ask about the ways of investing in an IPO, is investing in IPO is saving. Here in this article, you will find the correct answer to every question about IPO. Here we mention some steps about how an IPO is issued and how one can invest in an IPO, and select the correct type of IPO. Although it is suggested that every investor never invests in the share market if you don’t know how it works. If you want to gain knowledge about it, then enroll yourself in the Best Stock Market Course In Delhi.