IPOs or Initial Public Offerings allow investors to build a strong and diverse portfolio. Many investors in India prefer an early entry into public firms through IPOs. Applying for an initial public offering is not rocket science. Any investor in India can apply for an IPO through an investment platform. Beginners or retail investors starting their trading journey must be familiar with the ins and outs of IPOs in India. Read on to learn more about initial public offerings in India in detail.
Understanding the Concept of Initial Public Offerings
An IPO is a process and an event for private companies to become public entities in India. A private company in India will not have public investors. All its investors might be promoters, insiders, directors, or business owners. When a private company decides to offer shares to public investors, it launches an IPO. An initial public offering will also be the first instance of the company offering its shares to public investors. Companies can raise large amounts of capital by going public in India. However, a company launching its IPO must be prepared to be more transparent in its operations, as it is now a public entity.
Once a company becomes a public entity, its shares are available on stock exchanges for trading. However, an IPO is different from the shares available on stock exchanges. An IPO comes with a subscription period, which is the tenure between the starting and closing date. Interested investors must submit their applications during the IPO subscription period to be considered for allotment. You cannot receive shares during allotment after failing to submit your application during the subscription period. Investors can rely on investment platforms to submit their IPO applications online. The issuer (company launching the IPO) will advertise the share price, closing date, price band, and other details in advance.
It is essential to know the market condition before making a decision. One just needs to look at a reputable index like Sensex. Type in ‘Sensex today price’ on Google and grasp the trend of the market. Some might rely on fund commentaries to choose the right ETFs and mutual funds. Similarly, you must check the IPO type before investing. You can invest in a fixed-price offering, which comes with a fixed share price. Some companies might launch a book-building IPO where the share prices aren’t static. On the other hand, a book-building IPO comes with a price band. Investors applying for a book-building IPO must place their bids within the given price band. When the IPO closes, the issuer selects the price with the most bids as the final IPO share price.
Pros of Investing in Initial Public Offerings for Indian Investors
Here are some features of initial public offerings:
- You can get early entry into a public company in India by purchasing shares in its IPO. Since a company will offer shares to the public for the first time in an IPO, you might be among the first few investors.
- You can enjoy capital appreciation by investing in an initial public offering. When the market cap and financial performance of the company improves in the future, you can get multifold returns.
- Public entities are transparent in their operations and strategies. You will have ample data to perform research for public stocks.
- You can choose companies belonging to different industry sectors. By investing in IPOs of such companies, you can build a diverse portfolio.
- Many companies offer dividends (a part of profit) or bonus issues (additional shares) to their shareholders. You might achieve these benefits by purchasing company shares in an IPO.
You can choose an investment platform and leverage the power of IPOs by applying. The process to apply for an initial public offering is digital, quick, and secure.
IPO investments are gaining more popularity in India. Investors are realising the worth of adding publicly traded shares to their portfolios. You can also use a trading platform to browse current initial public offerings and submit applications. Choose an IPO and apply within the subscription period!