Should You Invest in an IPO? What Should You Know Before Investment?

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The Indian stock market is valued at 2 trillion dollars, placing it at the 7th largest number globally. Read why you should invest in an IPO?

Introduction

The Indian stock market is valued at 2 trillion dollars, placing it at the 7th largest number globally. With that said, companies these days want to get a piece of this valuation. But how?

By entering the stock market and raise capital for their operations and meet expenses for their organizations. They need to have an IPO or initial public offering to value their company for listing it on the Indian Stock Market.

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As an investor, you may believe that it is worth investing in IPO to fetch greater rewards by starting low and selling high. That is true in most cases. There are numerous factors to consider, like company profits, price-to-earnings ratio, current valuation, market reputation, etc., before investing in an IPO.

But to give more perspective towards this, let us have an in-depth conversation about why you should invest in an IPO. What benefits to reap from such an investment?

What is an IPO?

Let us address the elephant in the room and understand what an IPO means. IPO or Initial Public Offering is a company’s way of addressing the investors & traders that it is going public. Investors or traders can invest in the company and own a small chunk of the company. The company raises capital for its growth, Research & Development, expansion, and whatnot. 

From an investor’s point of view, it’s quite the investment as you start at a lower price point and could make profits based on the overall growth. It all depends on the investor’s keen eye and the right investment in an IPO that could fetch you a greater return in the long run. 

Different Types of IPOs

Based on the sector, there are different IPOs that a company could choose to enter the stock market. They are as follows:

1.Follow-on Offer

In such an IPO, the company is already listed on the stock market and traded. However, for the company to raise additional capital, they can choose the IPO route, and its broadly known as a follow-on offer. 

2.New Offer

When a company gets listed for the first time, the IPO is called a new offer. At such an IPO offering, the company plans to inject more capital into the organization by selling stocks and shares at a specific price point on the stock market. 

3.Offer for Sale

At such an IPO offering, the promoters of the company can sell their shares to other entities. It is an exchange program where a floor price per share is set. Investors need to bid above the floor price for the company. A buyer can buy a single share or multiple shares through OFS.

Reasons to Invest in an IPO

Why would you like to invest in an IPO? Let’s hunt for some valid reasons.

1.Fresh Opportunities 

IPOs give investors an early chance to buy shares in the company to earn a small portion of the company; it is all based on the number of shares you purchase. Moreover, it all depends on your sense of investment in the budding company to secure your investment. If the company outperforms what its projections are, then you could see yourself with impeccable returns. Not to get too excited! It takes time and patience to achieve significant returns.

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2.Playground Levelling

Investing in an IPO doesn’t require a keen eye on the pricing, as anyone looking to invest in it have to pay the same price per share. Being in the equity market, you can buy multiple stocks, but then the cost would differ based on your purchase number. Moreover, the only thing that matters is the IPO you choose to invest in while keeping all the facts and figures of its growth into consideration.  

3.Financial Goals Mark-up

If you are an investor and want to see your investment double or triple over a long period, then IPOs are the best investment possible. Before you start bantering about this, it all depends on the company and the amount you invest. For the same reason, getting your homework just right while knowing the company goes a long way and could reward you handsomely in the future.

Conclusion

Investing in an IPO proves to be quite beneficial, provided you have made the correct investment. Not everything is black and white in an IPO investment. How much you earn off your investment? The answer lies in the adequate investment period and the selling point of the shares. A simple strategy can turn it into a high-return investment. And, you can enhance your earnings!

However, you cannot rule out the drawbacks of an IPO investment as well. Ultimately, mapping out a concrete structure for how you would want to invest in an IPO would prove advantageous. So, try and analyze the company before investing in it.

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