What are IPOs? How do they work?

What is an IPO?

The initials I. P. O. in the context of the shares market refers to an Initial Public Offering. This occurs when a privately held company makes the move to become a publicly listed company and begins to sell shares to investors. Companies have varying reasons for wishing to become publicly listed, but it is usually as a way or raising more capital as the company desires to enter a phase of expansion into other areas or to take over a competitor. The main difference from the point of view of the investor is that they will be the first owner of any shares that they choose to buy. The price of the shares at the IPO stage is always fixed. Once the IPO is complete and all the shares have been sold, investors wishing to purchase shares in that particular company will have no choice but to buy them from other investors who bought them during the IPO stage. At this time, the value of the shares is subject to change as they are said be be in ‘free float’ on the stock exchange. They can rise or fall in value as the markets dictate.

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How can I invest in an IPO in India

In order to purchase shares at the IPO stage, an investor must have a demat account in place. A demat account is a like a digital locker for storing electronic copies of documents proving that you own the shares. In days gone by these were paper documents which needed to be carefully looked after and protected from accidental loss, damage or theft. There was also the possibility for unscrupulous dealers to sell fake share documents. The demat account system has virtually put an end to such risks. Demat accounts can be opened by your designated broker on your behalf. Some brokers charge for opening demat accounts, but others such as GOODWILL INDIA offer this service absolutely free of charge. Once the demat account is opened, buying the shares of your choice is a simple matter of placing your order with the broker.

Things to bear in mind when deciding to purchase shares at IPO stage

The first thing to realise is that you do not have control over when a company decides to go public or not. You may be desperate to purchase shares in a particular company that you have identified as having potential, but if that company has no plans to go public, you have no chance of buying shares in it. You will have to see what IPOs are available at any given moment in time and decide whether or not you are interested in those companies. It can be very difficult to make a decision, as the companies will be offered on the stock market for the first time, they have no history to look at and base your decision upon. All you can do is study the literature that the company itself publishes about itself. Of course they are looking to appeal to investors so they will always highlight positive attributes and gloss over the negatives. You must consider the risks carefully before you decide which is the best IPO in India for your personal self, if indeed IPOs are right for you at all. There are some people who specialise in buying shares at IPO stages and immediately selling them on as soon as they are allowed to do so. These people are known as ‘flippers’.

Where to Find More Information?

Most good brokers will be able to give you more advice and explain more about the process of acquiring shares during in IPO stage. GOODWILL INDIA for example have a team of friendly and knowledgeable customer service advisors who are more than happy to respond to the questions and doubts of potential investors. This need not only be on the subject of IPOs but on any matter relating to stocks, shares, commodities and foreign currency exchange in India. They can be reached by calling +91 80122 78000. There is no need to be shy. They are there for you.

 

 

 

To get more insights about IPOs, read our blogs:  

The Techniques of Pricing IPOs

How Does a Company Create New Shares During an IPO?

How to Invest in IPO Online? What are the Benefits of IPO?

What Are Pre-IPO Shares? How to Invest in Pre-IPO Shares in India?

What You Should Know About Mainboard IPO and SME IPO Before Investing

How can One Invest in a Company Before it is Listed on the Stock Exchange?

Investing in Unlisted Shares. What are Unlisted Shares? How to invest in Unlisted Shares?