Learn What IPO Concept
If you are interested in investing in the share market then you must have heard the name of IPO, but if you have never heard this name then it does not matter because today we are going to tell you a lot about IPO or in this way After reading this article, you will know what is an IPO, how can you benefit from it, what are its disadvantages and how many types of IPO are there, so do watch the article till the end. let's start and know
What Is an IPO?
About IPO The full form of IPO is from the beginning Initial Public Offering And through this process a private company is transformed into a public company.
Through IPO, the company goes public, lists itself on the exchange and sells shares. Through IPO, the company gets a chance to raise its capital.
In which money is raised by issuing shares to the public. In the stock market, this is called First Public Invitation, hence it is named IPO. In India, this process is regulated by SEBI.
Through IPO, investors are able to acquire a part of the ownership of the company because they have some shares of the company. In this process, small investors get an opportunity.
So that he can make smart returns on his investment. An IPO can also give you profit.
How Can You Benefit From an IPO?
Then there is benefit in knowing as much as possible about it, isn't it? We know that investing in an IPO can be a good decision but investing in every IPO can be risky because it has benefits and risks simultaneously. Therefore, the intention to invest should be made only after understanding the basics and after knowing the details of the upcoming IPO. IPO is the first time.
When a company issues its shares to the public and this happens when a private company decides to become a public company. While being a private company, the company has very few shareholders which include early investors like the founder's family and friends.
And among the professional investors there are venture capital or angel investors but when the company reaches the stage of its growth process where it is confident that it is ready for SEBI regulations and to take the responsibilities of public shareholders. is also ready for
Then that company starts showing its interest in becoming a public company and also advertises it. During the IPO, the company opens the sale of its shares to the public and as an investor, now you can directly buy the shares of the company and the shareholders Can be made but you should also know that even as an investor you can buy shares first
But you will have to wait a little to sell them because you can seal the shares only after the IPO is listed on the stock exchange and not before that. But why does a company become completely public? Let us know what the company needs for its growth and expansion. Capital race has to be done
More funds are needed to increase the operations of the company. Money is needed to develop new products and to repay the debts of the company. By becoming a public company, it becomes very easy to gamble with so much money.
Through IPO, the company can make its products and services public among new customers in the market. Through IPO, the company's exposure, prestige and public image increases, which improves the company's sales and profits. Due to quarterly reporting, the transparency of the company increases. Which proves to be more favorable in comparison to a private company. IPO is a big step for a company because through it the company can raise a lot of money.
That is, an IPO offers great opportunities to a company to go and expand, then it is the reason for a private company to become public, that is, an IPO is a fundraising method for a big company in which the company sells its shares to the public for the first time.
But does an IPO generate only profit for the company and investors? Yes, it is known that when you subscribe shares during an IPO, you will become one of the shareholders of the company right from the beginning and then as the company goes up, the share price will go up. will also increase
Due to which you will get profit but you should also know that as an investor you can get a lot of profit from IPO and also a lot of loss. whatever happens will be huge, hence the investor should know about the risk factors about the company. Investment should be made keeping in mind individual financial circumstances so that even if there is not much profit, the loss also remains negligible and some of the disadvantages of IPO for the company are that IPOs are quite expensive and private companies. In comparison, maintaining a public company is quite tough.
For an IPO, the company has to disclose its financial accounting, tax and business related important information which can be beneficial for competitors. If the market does not accept the IPO price then there will be no funding race. This risk also remains.
How Many Types Of IPO?
Let us understand two common types of brothers.
Fixed Price Offering or Issue Book Building Offering or Issue Fixed Price Issue
In this, the company, along with its underwriters, evaluates the price of its offerings, in which the assets, liabilities and financial aspects of the company are evaluated.
After which the price of the offerings is fixed and in this the fixed price is mostly less than the market value, hence investors are always interested in fixed price issues. Let us tell you that the underwriter can be a banker, financial institution, merchant banker or broker.
They assist the company in underwriting its stocks. Now let's talk about the book building issue which is a comparatively new concept in India. There is no fixed price on this but there is a price band or price range. The lowest price is called floor price. And what price is the highest price called?
On this, investors can place bets for shares and after evaluating the bit, the price of the stock is fixed. To understand this, let us take an example like a company launched its IPO whose price range is from Rs 250 to Rs 300, the floor price in this is And the cap price will be Rs 300. Now if the allotment price is Rs 275, then the investors who have invested Rs 275 or more will receive the allotment.
Now if we understand the major difference between these two offerings, then in fixed price issues, the price of shares is fixed on the first day of listing and is printed on an order document, whereas in book building issues, only the price band is fixed initially. If the pick happens and the exact price is not fixed, the demand in the price issue will be known only at the closing of the issue.
Whereas in book building issues, the share demand is known after every day. In the fixed price issue, you have to pay a hundred percent price of the share at the bidding time only, whereas in the book building issue, payment can be completed even after allotment. Let us now. Let us know further which steps a company has to follow for an IPO.
First step
Hiring an underwriter or investment bank to work out all the details of the deal including the amount and securities
Second step
Registering for IPO
Third step
Getting verification done from SEBI
Fourth step
Applying to Stock Exchange
Fifth step
Advertising IPO
Sixth step
Initiating IPO price through pick then price issue or book building issue
Seventh step
Stalling of shares is a long process only if the company follows these 7 steps. It is really a long process. If we talk about investors after the company, when a company launches an IPO, investors can invest in many categories.
There are many types of investors like Retail Individual Investors. RAA Non Institutional Investor Qualified Institutional Investor and Anchor Investor.
At number one, we talk about retail individual investors, this is the largest category which includes Resident Indian Individuals, Resident Indians. NRIs and Hindu Undivided Families.
Maximum investment amount in this category ₹200000 There is a minimum IPO for this category. 35% Reserve remains, investors of this category can bet on the cut off price.
Let us tell you that the cut off prince is the price at which shares are issued to investors. Being in this category, bits can be withdrawn till allotment is given and allotment is the process in which shares are stalled to the shareholders.
Non Institutional Investor
At number two comes the non-institutional investor, that is, if a new investor qualifies to bid in the RAA category.
but he 2 lakhsIf someone wants to invest more than Rs. 2 lakh then he will be kept in a new category. This category includes Resident Indian Individuals, Nurses, Hindu Undivided Families, Corporate Bodies, Companies, Trusts, Science Institutions and Societies. Investors of this category can invest more than Rs. 2 lakh.
IPO minimum 15% The result for this category is: Investors of this category cannot place bets at the cut off price and while being in this category, the bets can be withdrawn till allotment is done.
Qualified Institutional Fighter
In this category, Mutual Funds, Public Financial Institutions, Foreign Portfolio Investors and Commercial Banks are extra. 50% of the offer size of the IPO is reserved for this category. Investors of this category also cannot place their bets at the cut off price and while being in this category, bit Cannot be withdrawn after closing of IPO
Anchor investor
Anchor Investor is at number four. It comes to such NRI's, Hindu Undivided Families, Corporate Bodies, Companies, Trusts, Science Institutions and Societies that up to 60% of the total is allotted to it. Candidates of this category also cannot place a bed on the cut off price. What are the rules for the company and investors in an IPO?
You have taken all the information about what processes are done in IPO, but it is also important for you to know that you cannot apply for IPO through multiple applications by name.
If you try to do this then all the applications made in that name will be rejected. If you want to apply through multiple applications then you can apply in the name of your family members but they must have a demat account and PAN card. So friends, in this way you now know what IPO is and how you can take benefits in it by being aware.
Nevertheless, let us remind you once again that before investing in an IPO, you must check the background of the company and its promoters. You must know about the performance of the company, how many years the company has been in business and how many How has its growth been over the years and invest keeping all these things in mind?
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