With the current buzz around IPOs listing in India, it is super important for us to understand quick 2 things:
1. What is an IPO and When do companies file for an IPO?
2. What is the optimal way to invest in such companies?
1. What is an IPO?
When a private company offers its shares to the public to raise money from investors, this transition leads to list that company in a publicly listed company. This not only gives the company to raise money from multiple scales of influencers but also gives an opportunity to the common man to invest in the stocks of these companies.
In general, firms that surpass the 1Billion$ valuation and become a unicorn usually go for an IPO, but there are no fixed rules.
This is a huge step for any firm as it raises a large amount of money from the public, whereas before this there are fewer stakeholders in any company like founders, Angel investors, professional investors, etc.
There are several motives why a company goes for an IPO like expansion, debt clearance, other expenses, etc.
2. How can one invest in IPO?
1. First step is to “DECIDE”: First and foremost step is to decide which IPO you want to invest in. Sometimes it can be intimidating if you are a new investor. To make it more research-based, one can go through the prospectus shared by the companies while they are filing for it.
The prospectus helps the investors to form an informed idea about the company’s business plan and its purpose for raising stocks in the market. Once the decision has been made, you are all set for the next steps.
2. You need to open a Demat-cum- trading account: You cannot apply for an IPO without a Demat account. The function of a Demat account is to provide you with the provision to store shares and other financial securities electronically. One can open a Demat account by submitting your Aadhaar card, PAN card, address, and identity proofs.
3. Then happens the bidding: Then you need to bid while applying for the shares in an IPO. It is done according to the lot size quoted in the company’s prospectus. Lot size can be referred to as the minimum number of shares that you have to apply for in an IPO.
A price range is decided and the investors require to bid within the price range. Though you can make a revision in his biddings during an IPO, it should be noted that you need to block the required funds while bidding. In the meantime, the arrested amount in the banks earns interest until the process of allotment is initiated.
4. Then comes the Allotment: Sometimes the demand for the shared exceeds the actual number of shares available. Sometimes, the opposite may happen too. In these cases, the banks unlock the arrested funds either entirely or partially.
But, if you are lucky enough to get a full allotment, you would receive a CAN (Confirmatory Allotment Note) within six working days after the IPO process is done. After the shares have been allotted, they are credited to your Demat account.
Once the above-mentioned steps are carried on successfully, you will have to wait for the listings of the stocks in the share market. It is generally done within seven days after the shares are finalized.
Here is a quick and simple guide for you to invest in your first IPO. We hope this was helpful to you. For more beginners level finance-related insights, stay tuned with GETO.
Geto is a vernacular financial education platform with a vision of helping first-time investors manage their money better with personalized advice and access to experts in their very own language.
