How IPO Investing Works and Its Benefits: Unlocking Your Opportunities

No matter if you are an experienced investor or an amateur who has just started your investment journey, you may have heard of many jargon or investment terms. One such turn is IPO or Initial Public Offering. An IPO occurs when an organisation offers its shares to the general public for the first time. 

By participating in the IPO, you get an opportunity to buy stakes in a company as it enters the stock market. IPO investing offers an excellent opportunity for you to invest in companies that have a high growth potential at an early age. As a shareholder of the company, you are entitled to receive bonus shares and dividends as declared by the company’s management. 

Investing in an IPO can significantly help you diversify your portfolio and leverage the emerging prospects in the market. 

 

How does an IPO work?

As an investor, you must have a clear understanding of how an IPO works. It is actually quite simple and involves a few well-defined steps, including:

• Selecting an underwriter

The organisation that is offering an IPO should first choose an investment bank to underwrite the IPO. The bank assists the company with setting the IPO price and also in meeting other regulatory requirements. 

• Submitting documents

After the underwriting is done, extensive documentation, including financial documents, legal disclosures, and statements, is provided to potential investors, who will be provided with information about the company’s financial condition and operations. 

• Listing

In India, organisations offering IPOs list their IPO documents on major stock exchanges like BSE (Bombay Stock Exchange) or NSE (National Stock Exchange), which reviews their compliance. 

• Roadshow

After the listing is done, the company executives and the underwriters promote the IPO to the investors. 

• Pricing

The price of the IPO, i.e., the share prices, are set based on the existing market conditions and the investor demand. Once the price is set, the share is issued to the investors. 

• Trading starts

On the day of the IPO, the company’s shares are listed on the stock exchange and become available for trading by the investors. 

 

Benefits of investing in IPO

As an investor, when you invest in initial public offerings, you can enjoy a wide range of benefits, which are discussed below:

• Early investment opportunity in companies with high growth potential

One of the most significant benefits of buying an IPO is that it allows you to be a part of the company’s journey of growth right from the start. Imagine investing in a company with a ground-breaking product or technology, and if it succeeds, your investment will skyrocket, significantly boosting your wealth. 

• Complete transparency

IPO investing is all about transparency. When you invest in any IPO, you can refer to the IPO document, which clearly states the price per share, the company’s growth potential, etc. This transparency ensures that all the investors have access to the same pricing information, and they can make an informed investment decision. 

• IPO regulations

To protect the interests of the investors, SEBI (Securities Exchange Board of India) has introduced strict regulations for all IPOs. As per the SEBI mandate, the company offering an IPO must compulsorily provide vital information about the company’s performance, growth potential, risks, plans, etc. You can use this information to make informed investment decisions as an investor. 

• Diversification

Investing in IPOs gives you the opportunity to diversify your portfolio with companies that have a high growth potential and are making their debut in the stock market. This can help you effectively manage and spread the risk while increasing the chances of getting valuable returns. 

• Fair opportunities

SEBI is the regulatory body that oversees all IPOs. For the benefit of retail investors, SEBI has relaxed the investment norms to ensure that small investors get a fair chance at share allocations. 

In case of oversubscription, as per the SEBI mandate, all retail investors get at least one lot of shares, subject to availability. If the individual lot allocation is not feasible, a lottery system is employed so that the IPO shares are distributed in an equitable manner. 

• Fulfil long-term goals

IPO investments are essentially equity investments which have the potential for substantial returns in the long run. The returns from IPO investment can help you accomplish your long-term goals, like paying the downpayment for your new home and avail a home loan. 

By investing in an IPO at an early stage when the share prices are low, you give yourself the chance of earning high returns in the long run. If the share prices increase, you can get valuable returns when you sell a few shares you hold. 

You can then use the amount to pay the down payment for your new home and get the home loan approved without any hassles. You may also consider paying a higher down payment than the minimum amount required. This will help you borrow a lower amount and make the repayment much easier. 

This is because the EMI (equated monthly instalment) is directly proportional to the amount you borrow and the interest rate. The higher the borrowed amount and interest rate, the higher will be the EMI and vice versa. 

And, if you are looking for the best home loan offer, you can consider applying for a loan with one of the leading NBFCs in India, India Shelter. They offer many home loan solutions at the most competitive interest rates and with extended repayment tenure of up to 30 years. 

Also, the quick online home loan application and approval process ensures you get the required funds hassle-free, helping you complete your home purchase faster.

 

Conclusion

IPO investments offer a gateway for wealth creation and achieving long-term financial goals. They give you a unique chance to invest in high-growth potential companies early on. But it also comes with its own fair share of risks. So, you must do your due diligence, understand the risk and growth opportunities and invest accordingly.