Many of us would have gone through the term IPO in investment. Most of us would have seen an article in the newspaper or an announcement stating the IPO offerings of a company. But the fact is that it’s not common for people to be aware of what IPO is and what the benefits of IPO are? This is where Goodwill comes into play, is a leading trading commodity broker in India with a team of select experts from the field who’ll guide you on how to invest in an IPO, and help you understand the benefits of IPO.
First, let’s have a look at what is an IPO and why you should invest in it.
WHAT IS AN IPO?
IPO is abbreviated as Initial Public Offering. IPO is a process in which a privately held company changes to a publicly-traded company by offering its share to the public in the market. Thus it will help the company to raise capital from public investors. As a result the private company would be public now because of the many shareholders who own their ownership.
Before the IPO, the company would have fewer shareholders including the individual investors, shareholders of the company, foreign investors and other companies. But when it is converted to an IPO, as an investor you can directly purchase the shares from the company and can become one of the shareholders. The company’s name gets listed on the stock market through an IPO.
WHY SHOULD ONE INVEST IN IPO?
You might still be confused on whether you should invest your money in IPO. Here is the complete guide to let go of all your doubts. Investing in an IPO of a company would directly raise the capital of the company which would in turn raise the sales of the company.
Generally, a company would decide to raise money via IPO after taking several analysis strategies as this exit strategy will help their early investors to maximize their returns. The price of the IPO is set by the underwriters through their pre-marketing process.
The IPO pricing is considered based on the fundamental techniques such as discounted cash flow, equity value, enterprise value, comfortable firm adjustments and more. Underwriters and interested investors will have a detailed look on the company’s net share value on a pre share basis. Still confused on which company to invest in IPO, Visit Goodwill to seek the right guidance on choosing the best company for an IPO investment
An investor will also be able to measure the performance of an IPO that would affect the returns based on several factors such as:
- Lock-Up: A lock-up period is a period where the company’s executives and investors will not be able to sell their stakes for a certain time-period based on their legal contracts. The lock-up period is usually from three to twenty-four months, as ninety days is the minimum period for a lock-up period according to SEC 144. Investors can sell their stock once the lock-up period ends leading to a drop in share price.
- Flipping: Flipping is nothing but reselling of stock in the secondary markets for an instant return in a short span of time. Short term investors buy the stock at the IPO and sell it in the first trading days for a higher price.
BENEFITS OF INVESTING IN IPO:
Investing in an IPO can fetch you benefits such as:
- Advantage for First-Movers: You will be benefited if you buy the shares immediately when a company has made its decision to be an IPO. As its share would change substantially once it enters the secondary market.
- Higher Returns: Buy shares in an IPO, if you believe that the company has potential to grow, and that it can benefit you. Analyze the core fundamentals of the company and make your investment wisely as it can help you yield better returns from the stock.
- Listing Gains: Are you a trader interested in short term returns? Then choose a company in the stock market with higher opening price than the allotment price called as listing gain. It will help you get better returns at one time in a day.
HOW TO INVEST IN IPO?
If you are a new investor, you need to know more about IPO and its categories. There are two major categories of IPOs that are followed by the companies:
- Fixed Price Offering: Fixed Price Offering is adopted when the company decides the price of the initial public offering in advance. Pay your advance in full, if you have decided to take part in a fixed price initial public offering.
- Book Building Offering: The stock price in book building is offered at 20 percent band and the investors are allowed to pay their bid. The lower level price band is called as floor price and the upper level band is called as cap price. It allows the company to analyze the initial public offering among the investors before declaring the final price.
It is easy to apply for an initial public offering because of the online application process. If you are a new investor, you need to know about a few things before applying.
The first important thing is funding. Whether it is a fixed price or a book building IPO, as according to your choice you will have to make a payment in advance. Investors can use their savings or avail a loan from the bank or NBFC for the purpose.
Without a DEMAT account, you can’t invest in stocks. Hence, the next step is opening a DEMAT account. To open a DEMAT account for free you can get connected with Goodwill. Visit our website to open a DEMAT account.
You can use the DEMAT account not only for IPOs, but also to receive all sorts of investment instruments like gold bonds, corporate bonds, shares, etc.
The online process is an easy way to apply. You can do it from the investor portal on the Goodwill website or by downloading the ASBA form from your bank’s net-banking platform.
ASBA stands for Application Supported by Blocked Account (ASBA). It allows the bank to block funds in the applicant’s account against your bidding for the IPO. If you are planning to apply through Goodwill, you get to make your payments easily via UPI gateways.
After you get your fundamentals clear, make your investment in the category that suits your convenience. The public market opens up a huge opportunity for millions of investors to buy shares in a company. Thus, contributing a huge capital to a company’s shareholders’ equity. The public may consist of any individual or institutional investor who is interested in investing in the company. At Goodwill, you’ll get expert support and technological backup through apps to start your trade in IPO. Visit our page to know more details.
After all, the generating factors for the company’s new shareholders’ equity value are truly based on number of shares the company sell and the price for which shares sell. Thus, in an IPO, the shareholders’ equity increases significantly with cash from the primary issuance.
IPOs are the big events in the stock market. Invest your money in the right company, as you have the right chance to yield better returns.
Being an award-winning brokerage firm in India, Goodwill has been awarded MCX – Best Retail Broking House award for the past 3 years (2017-2019), therefore investing your money with Goodwill will be a trustworthy option. Stay connected with Goodwill, visit Facebook Page to get live updates on trading.
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